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Tuesday, October 19, 2021

The Maximum Fear has Passed, Money Managers Looking for Risk-on Exposure

Shayne and I expect to see an increase in risk-on exposures as money managers are now positioning for a slowing rate of coronavirus contagion growth.

Despite the buying by some aggressively Bullish hedge funds, macro hedge funds, which place bets on macroeconomic trends using index, currency and interest rate strategies, are still sellers.

So, now after a tough March and a blazing April some hedge funds, emboldened by early signs of the coronavirus chaos peaking in the biggest US centers have begun adding to risk.

Anxiety, worries and concerns over the economic hit from The China Virus hammered riskier assets in February and March. Nevertheless, hedge funds outperformed the market, with the HFRX Equity Hedge index down 9.58% in March, compared with a 12.5% decliner for the S&P 500 Index (SPX).

We here at HeffCap are seeing re-risking, it has been going on for the last 3 wks, but not back to levels that we saw in February or early March.

Managers are selectively buying solid companies that have cash flow going forward and shorting weak companies.

As we have seen in the past 4 wks, stock markets have started to climb up from the S&P 500 2,191.86 bottom put in on 23 March and has risen nearly 30% from that mark, telling us that hedge funds are rebuilding risk.

The way we measure hedge funds’ risk taking is to track their equity beta sensitivity, or their sensitivity to equity market movements.

For fundamental value hedge funds globally, net exposure to developed market stocks as measured by their 30-Day RB (rolling beta) recently stood at about 0.8, compared with under 0.7 at end-January, according to the data.

US based hedge funds, net leverage; a measure of how much risk they are taking as they chase returns fell during the March selloff to the lowest it has been since Y 2010 but both gross and net leverage have come back.

Funds relying on systematic strategies such as risk parity and CTAs (commodity trading advisors), which were partly blamed for aggravating the recent selloff by offloading risk when the markets were most vulnerable, have also been buyers recently.

Again, we expect to see an increase in risk-on exposures as money managers are positioning for a slowing rate of coronavirus contagion growth, as there are trillions on the sidelines.

There are however, some funds making bets on the market retesting its lows are still looking to do some buying in certain sectors, while a majority of the buying would occur once such a pullback happens (if it does) they are making incremental buys as if the Bottom is in.

If global macro funds join the buying it will give the stock market another Bull leg up.

Have a healthy day, Keep the Faith!

HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.

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