All hedge fund indices outperformed the S&P 500 last week, with CTAs at the top with a return of 1.7%, according to Bank of America Merrill Lynch’s Hedge Fund Monitor. The diversified hedge fund index was up 0.4% last week, while the S&P 500 was down 1.5% on a price returns basis.
According to the BofAML report, market neutral hedge funds market exposure decreased to -6% net short from -5% net short. Equity long/short market exposure decreased to 25% net long from 26% net long; below the 35-40% benchmark level. Macro hedge funds decreased their long exposure in S&P 500 but increased Nasdaq long exposure. They increased their long exposure to the U.S dollar and 10-year Treasuries. They also increased their short commodities exposure. Overseas, they increased EM short exposure.
For a third week, large specs sold S&P 500 and Nasdaq contracts decreasing net long positioning. Nasdaq longs are now the smallest in more than two years. The MAA indicates that longs may reduce but technical analysis recommends remaining bullish.
Large specs bought gold for a fifth successive week at a strong pace increasing net long positioning to a new two year high. Specs also bought silver increasing net long positions for a sixth consecutive week. Both MAA and technicals suggest that gold longs may continue to increase.
Specs sold crude contracts decreasing net long positioning marginally. Specs also sold natural gas contracts increasing net short position. Natural gas was sold after being bought for five of the last six weeks. BofaML says in the report that their indicators suggest the selling should continue further.
Specs sold euro contracts increasing net short positioning for a sixth week. Specs bought MXN for a third week but at a reduced pace. According to BofAML, both MAA and technicals indicate that shorts are likely to continue to increase.
For a third consecutive week speculators sold wheat, corn and soybean contracts decreasing corn and wheat net long positions while increasing soybeans shorts to five year high. The selling is likely to continue.
The short covering in rates contracts continued with specs buying 10-year Treasuries for a fourth week at a strong pace decreasing net shorts. Specs also bought two-year contracts at the strongest pace in more than three months to now be net long. Technical analysis recommends remaining bullish.