Hedge Fund Winning Streak Comes to an End

Hedge funds had been on a roll. But that sweet run ended last week when hedge funds fell by 1.43%, erasing any gains for the month of October.

According to analysts at Merrill Lynch (BAC), those losses were led by equity long/short hedge funds (-3.0%), macro hedge funds (-1.7%), and commodity trading advisers (-1.3%).

“The danger going forward is that strategies like long/short equity and macro will try to quickly reduce their exposure on the long side and increase it on the short side to get back closer to neutral. That could lead to significantly more selling in the weeks ahead,” wrote Mary Ann Bartels and Shan Hasnat in the latest Bank of America/Merrill Lynch Hedge Fund Monitor.

Up until October, hedge funds had gained for seven straight months. But the news isn’t all bad. Market neutral equity funds, which make up a large part of the hedge fund universe, ended the week flat. And hedge funds are still up 14.5% year-to-date, according to Bartels and Hasnat.

Meanwhile, according to the report, hedge funds aggressively bought crude oil last week—which seems to be the flavor of the moment. They also increased their longs in heating oil and gasoline. Does this foreshadow a long, cold winter ahead? Who knows, but you can see the full report below.

BofA Merrill Lynch Hedge Fund Monitor Nov. 2 2009