What Hedge Funds Are Buying and Selling Now

Embedded below is an interesting report from Bank of America Merrill Lynch regarding hedge fund position adjustments and performance for the prior month. The report touches on the fact that many funds have been buying S&P and NDX futures and have covered shorts in the Russell 2000. They also note that many funds are in the now crowded gold trade while some also bought platinum. Other moves in precious metals include selling silver and adding to shorts in copper. On the energy front, hedge funds were selling crude oil and reducing longs in heating oil. In the forex markets, hedge funds have been steadily pressing their short on the US Dollar and the market seems to have held on to a crowded long Japanese Yen position.

The report also delves into interest rate trades which was of particular interest to us given the large amount of funds we've tracked that have positions on in this regard. The report notes that there are very deep short positions in the 10 Year Treasuries & 30 Year Treasuries but they were starting to modestly cover. They also apparently reduced some of their long 2 Year Treasury positions. These latest moves seem to indicate that hedge funds as a whole are scaling back a bit from the curve steepener trade. You'll remember that we've noted hedge fund legend Julian Robertson has put on a curve cap play which bets on rising interest rates on the long-term bonds. On the other side of this argument, we've also seen bond connoisseur Bill Gross of PIMCO wager on deflation by buying long-term treasuries recently. This debate will surely wage on throughout the end of this year and well into next year, so we'll continue to track what side of the trade prominent hedge funds are taking.

Overall, a very intriguing report as it examines the hedge fund landscape as a collective whole as it pertains to portfolio adjustments. Here is the hedge fund trend monitor report from Bank of America Merrill Lynch embedded below:



Alternatively, you can download the .PDF here.

For more on current hedge fund strategies, we've covered a wide variety of reports from Goldman Sachs that we highly recommend checking out. They recently issued their 'Best Long & Short Strategies' in the current markets where they examine some of the trades hedge fund might be putting on. Additionally, they also have a hedge fund trend monitor of their own, similar to the one above. Finally, they've also released a report on 'Where To Invest Now'. All are great additional reading on the topic of current hedge fund strategies. We'll continue our hedge fund portfolio tracking as always and will keep you updated as to what the smart money is up to.

Comments

[markfl:]

You had a good article here, but many of the details were in the links. As for the hedge recommendations in the links, I think many people could agree with the concept of something like short ETFs with equity holdings heavily exposed to CRE and REITs, as well as to retail. The retail outlook this Christmas is uncertain at best, and I don't really read many articles singing the praises of long CRE at the moment.

Oct 13 12:34 PM

[Kinabalu:]

There's some very good stuff in the linked data. One of the most interesting parts of the linked Hedge Fund Trend Monitors is the page where they list the limitations & drawbacks of the analysis, page 19 for BofA/ML and page 24 for GS. The limitations of the analysis are legion. Curiously, while the actual limitations are probably the same for both reports the disclosure is not.

Oct 13 02:08 PM

[Maximize401k:]

Great info, and interesting concepts, esp. shorting the USD against commodity producing countries, such as AUD & NOK (Norway the biggest gas producer in the world, did not know that!).

Blog: Maximize401k.wordpress...

Oct 14 03:58 AM

[bdrose:]

Do NOT try to use the Print feature above the embedded article. What a disaster.

Oct 14 09:11 AM

[Daniel Eskin:]

Really interesting that there were shorts on silver. from what I've investigated lately, I'm very bullish on silver based on it's lower increase (% based) than increases in gold. I feel like there's more room for it to expand than gold now, despite that gold hit all time highs yesterday. But it's very predictable that precious metals investing as a whole is increasing now with the state of the economy. Schiff and many others have been advocating it for the last few years. About time investors listened.

Check out my blog at www.youngandinvested.com

Oct 14 10:01 AM

[ding:]

Maybe they are shorting silver because when the market falls so will silver, and everything else.

Oct 14 11:02 AM

[bobbybutte:]

Interesting data

My philosophy has always been to buy assets with predictible earnings which are unpopular and mundane

Beinga contrarian has made me financially independent .I enjoyed this article and its recommended

Oct 15 06:59 AM

[najdorf:]

markfl: If you're not reading anything pro-CRE, doesn't that make you worry that bad news is priced in and good news will be rewarded with price gains? From a sentiment point-of-view, I'd always rather short something that people love with comical valuations.

That said, I'm sure that if you know CRE very well you can find some disasters. However, there's typically going to be a floor under the losses because real estate is worth something even under the worst of circumstances - you're going to do better shorting tech companies with no revenue or financials levered 30-1 than any of the CRE companies that have some revenue and less leverage.

Also, remember that America has such a love affair with entrepreneurship and real estate that no matter how bad things get, idiots will appear to hold up prices. People will open marginal businesses or buy up vacant space at 5% off right up until the collapse of our economic system. I could walk down my street and show you ten restaurants that will never be profitable and ten stores that couldn't pay the owner a decent salary even if they turned over their whole inventory every week, but hope springs eternal.

Eskin: Since gold and silver as investments have essentially no fundamentals (no earnings, no fixed rate of exchange for other goods, no risk of short supply relative to actual demand), the pricing of them is arbitrary and entirely sentiment-driven. We could easily decide that gold is worth 5x silver, 10x silver, 100x silver, or 1000x silver. It doesn't matter which one we choose, except that it would obviously affect how miners invest their capital. Trying to guess whether gold or silver is a better "value" is a mug's game.

I would also assess that investing in something which produces no cashflow (metals) is pretty foolish, but I suppose that there are two possible perspectives:

1. You think that the world as we know it will collapse and paper money will end. In that case, you probably want to steer away from anything other than physical gold. You'd also probably derive more benefit from guns, canned food, and a secure, stable place to live, but maybe once you have all these things some gold bars buried in a safe might be better than the alternatives.

2. You think that paper money will continue, but people will continue to place a higher and higher value on gold based on fear/greed. You are a Beanie Baby investor. Good luck with that.

Oct 15 08:37 AM

[bobbybutte:]

Very interesting report enjoyed it

Asa person who has become financially independent through investing i agree totally that beinga contrarian is key

Gold is a perfect example those who bought it the beginning of the decade during the dot.com and housing bubbles did fine.

Now it is at all time highs a better way to hedge is to buy large cap multinationals as i explain in my newsletter

Jeremy siegel power of reinvested dividends is what you should read

97% of the gain in the Dow was through reinvested dividends in the past 110 years

I liked this article

Oct 16 02:11 PM

[ebworthen:]

Apparently, hedge funds know what to buy and sell before anyone else does.

Raj is a sacrificial lamb.

For every cockroach you see, calculate that there are 200+ more that you don't see.

Where is volume in the markets?

How about inside selling?

Hmmm....

Oct 16 10:03 PM

[talld:]

My home grown program that I use to analyze the market can distinguish between purchases made by individuals, and those by institutions when measured across time.

I have a list of scores in Excel somewhere, that details the interest level of each market sector, and some international markets on a scale of 0 to 100. It sounds cool, but as far as I can tell so far, there is no direct value in knowing this.

Besides what I expected there were emerging markets worldwide, and currencies strongly represented. The large funds appear to play the currency market by buying and selling ETF's for a market that is closed.

They prefer gold mines over gold, though they play both, and they prefer the sp500 over the dow most of the time. Oil plays very strong, but most other sectors tend to go in and out of fashion. For example, remember last spring when the Consumer was so big? Financials were not a sector, as they had blown up so badly as to behave individually. Remember?

Well, not anymore. It is still oil, but financial is now a sector again, and consumer has been written off mostly, and so of less interest. Well, you get the idea. It gives a person a bit of context, but there is no direct way to profit from this knowledge.

Oct 16 11:50 PM

[Broxburnboy:]

Silver and Gold have both been moving in opposition to the USD and in sync with the S&P500. If we get a USD rally (probably temporary), the indexes will go south and so will Silver. This is the short term counterintuitive play, but the theme of world markets is currency rates, the US markets are reacting to the devaluation of the dollar.
Short silver and the S&P on the USD bounce.


On Oct 14 11:02 AM ding wrote:

> Maybe they are shorting silver because when the market falls so will
> silver, and everything else.

Oct 17 10:28 AM