“This reversal to extremely bearish from markedly bullish is striking,” says Sol Waksman, founder and President of BarclayHedge. “Especially sour moods probably owe in part to the recent crash in the S&P 500, which plunged 16.8% between July 22 and August 8. Additionally, on August 9, the Fed announced it feels downside risks to the economic outlook have increased so much that it plans to keep the policy rate at exceptionally low levels until the middle of 2013.”
Hedge fund managers have turned modestly bearish on the greenback. Bearish sentiment on the U.S. Dollar Index increased to 34% in August from 30% in July, while bullish sentiment decreased to 24% from 33%. Meanwhile, managers remain downbeat on long-dated Treasuries. Bearish sentiment on the 10-year note stands at 32%, while bullish sentiment sits at 15%.
“Hedge fund managers have been net bearish on the long end all year even though the 10-year yield plunged to a record low of 2.07% in August from 3.75% in February,” notes Leon Mirochnik, CFA and Associate Portfolio Manager at TrimTabs. “Flows have also proven resilient. Demand at recent Treasury auctions was robust, Treasury mutual funds and ETFs continue to pull in cash, and fixed income hedge funds boast one of the heaviest year-to-date inflows of all hedge fund strategies.”
Hedge fund managers are very downbeat on the economy. About 56% think the economy is already in recession or will slip into recession soon, while only 3% feel economic growth is poised to accelerate.
“This pessimistic view squares with recent downward GDP revisions from the Fed, the IMF, and many Street forecasters,” notes Mirochnik. “Additionally, hedge fund managers tell us they are most upbeat on defensive sectors (Utilities and Consumer Staples) and least upbeat on risk sectors (Consumer Discretionary and Industrials). Consumer Discretionary is up 20.7% in the past year, the second-best performance of all sectors, but hedge fund managers feel strongly that moving away from risk is now the right way to go.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies. Click here for further information.
BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. For more information, please visit us here.