Bears Beware

April 6, 2011 James Heinsman Hedge Fund News

Bearish Hedge Funds?

The figure for bearish hedge fund managers on the S&P 500 (SPY) released by a BarclayHedge and TrimTabs survey plummeted a little this month. February’s stats for “bearish” managers ranked at 40 percent with March being 36 percent, and “the heaviest inflows on record” were recorded in February.

No Bears for Barclay

Barclay doesn’t have to worry too much; its Hedge Fund Index posted “a positive return for seven straight months.” But bearish sentiments were in existence elsewhere, probably spurred on by the world’s recent disasters and political unrest, most notably in Japan, the Middle East and North Africa. Still, despite this, there was around 18 percent of hedge fund managers anticipating an increase in “leverage in the near-term levels,” but 14 percent expected a decrease. This isn’t so new given the fact that similar mutterings have been heard over the last ten months.

Bearish Bonds and Stocks

According to Executive Vice President at TrimTabs Vincent Deluard, “managers aim to lever up even though they are bearish on both bonds and stocks.” This is because they are still very motivated to “gamble with borrowed money because short rates round to nil.” The company also found that the S&P 500 level, along with the Fed’s balance sheet has shown a “positive correlation of 88.4 percent since the start of QE1 in March 2009.”

There is however, still concern over oil prices with almost a quarter of survey respondents fearing there is a greater chance of it escalating to $150 per barrel than the S&P 500 reaching 1,600. There was a similar rise (of 50 percent) in 2008 and the factor of increased Middle Eastern unrest also has to be taken into consideration. Yet others believe this concern over escalating oil prices is somewhat inaccurate and it will be those companies that “might consider capitalizing by selling long-dated out-of-the-money call options on oil futures.”

These figures are of course currently based on opinions. Bear, or bull, it seems that the market and the world’s political environment will have as great an influence on what will ultimately occur.

BarclayHedge, Hedge Fund Index, Hedge Funds, Japan, Middle East,

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