Hedge Fund Managers Still Bearish – Fear Of Currency War

US hedge fund managers remain bearish on US equities, according to the monthly survey by Barclay Hedge and Trim Tabs. The fund managers also see currency wars as biggest threat to global financial stability at the moment, and belive the world leaders will focus on the wrong problems when they meet in Seoul  later this month.

“Many managers need a blockbuster Q4 in order to collect performance fees for the year.”

Vincent Deluard

Hedge fund managers remain downbeat on US equities, according to the BarclayHedge/TrimTabs Survey of Hedge Fund Managers for October.  About 39% of the 102 hedge fund managers the firms surveyed in the past two weeks are bearish on the S&P 500, up from 37% in September.

“The lean toward bearishness surprises us a bit because extreme caution in September produced substantial underperformance,” Sol Waksman, CEO of BarclayHedge writes in a statement.

Adding: “We suspect managers will invest much more aggressively in the current quarter.  Stock prices keep grinding higher, and hedge funds hauled in $18.8 billion in the past three months.  Managers have to put that fresh cash to work.”

About 32% of managers cite currency wars as the biggest threat to global financial stability, and 36% feel world leaders should focus on the problem of too-big-to-fail institutions at the  G-20 Summit in Seoul later this month.

So far, that particilular issue has not quite made it to the top agenda of the world leaders summit on November 11 – 12.

Hoping For A Change

Only half of managers think a Republican party victory in the US midterm elections, Thursday, will be a plus for stocks, while a quarter feel it will have no impact.

“That Republicans will seize control of the House tomorrow is already baked in,” Vincent Deluard, Executive Vice President at TrimTabs explains.

“Also, while the FED is capable of inflating the value of stocks and bonds, hedge fund managers are seasoned enough to know there is little politicians can do to juice asset prices,” Deluard says.

About 28% of hedge fund managers are bearish on the 10-year U.S. Treasury note, the largest share since the inception of the survey in May.

In contrast, 32% of managers are bullish on the U.S dollar index, the largest share since June.

Only 9% of managers aim to decrease leverage in the coming weeks, while 19% plan to increase it.

“Why are downbeat managers inclined to lever up?  Short rates that round to zero mean borrowing is virtually costless—that’s an attractive incentive,” Deluard notes.

“Also, a third of hedge funds are underwater for the year, and half posted a return smaller than 2% through September.  Many managers need a blockbuster Q4 in order to collect performance fees for the year,” according to Deluard.

And here’s the list of the CTA’s with the best performance over the last 12 months:

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.

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