Hedge Fund Stock Exposure Hits New Record High, But…

Did you wake up on Wednesday morning asking yourself whether the 2 and 20 crowd’s equity exposure hit new record highs recently?

Probably not. Chances are you don’t care because after all, thanks to central bank largesse and the “miracle” of ETF proliferation, your E*Trade account is outperforming every hedge fund on the planet Earth, so you know, who cares what they’re doing, right?

Of course then again, that’s actually the point, we suppose. If you’re buying yachts by riding (and helping to create) the wave that’s driving equities to ever more precarious levels and if, in doing so, you’re effectively helping to ensure the demise of the hedgies’ entire business model by summarily relegating the term “alpha” to the dustbin of market history, well then it stands to reason that hedge funds are going to pile in and try to ride that same wave (with leverage) lest the whole industry should go clean out of businesses.


Sure enough, as BofAML writes in their latest hedge fund quarterly, “hedge funds’ net stock exposure increased to $795bn notional from $792bn QoQ, ie, a new record high [while] HF long positions stood at $1.38trillion notional at the start of Q3 2017, surpassing the Q2 2015 high.” Here are the visuals:


The “bad” news (whatever that means in the context of everything said above), is that the Q/Q rise (0.30%) represents the slowest pace since Q1 2016. Here are some further details:

  • Hedge funds increased net exposure by 0.30% QoQ, or the slowest since Q1 2016.
  • In percentage, net exposure decreased to 72% from 73% over Q2.
  • Stock long exposure as a percentage of AUM stayed at 125%, i.e. the highest since the end of 2015.
  • Short exposure rose to 53% from 52% QoQ, but remained below the three-year average of 55%.
  • When including ETF positions, net exposure fell to 67%, compared to 68% in previous quarter. Gross exposure rose to 191% from 190%, or the highest since the end of 2015.

Of course that’s based strictly on equity holdings, which means it probably doesn’t include derivatives so you know, there’s no telling what the leverage/exposure here really looks like.



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