Hedge funds have had a torrid time ― here is what they're betting on now

Hedge funds firms are changing their bets as they seek to recover from a rocky start to the year.

They’re betting that markets will stabilise and be less volatile, but are doing so by betting on volatility itself, rather than on the stock market, according to a report by Societe Generale.

In fact, they’re not really upping their exposure to stocks at all. They are piling into US Treasury 30-year bonds, however, and they’re still long the Nikkei.

Here is Societe Generale on the issue:

Increasingly short volatility but no new long positions on US equity After a rough start to the year, hedge funds remain convinced that market fears will continue to fade. This is notably apparent through the increase in short positions on equity volatility, however without resulting in new net long positions on equity. Previous shorts on the S&P have only just been squared and, apart from a minor dent recently, net shorts on small caps (Russell 2000) were largely maintained. The long Nasdaq positions have been reduced, indicating that investors’ exclusive focus on growth stocks has started to crumble.

Hedge funds have ramped up their long positions in silver and gold, and they’re also betting that oil prices will climb. Net long crude oil positions have risen to their highest since July 2014, according to Societe Generale.

In the FX market, hedge fund are shorting sterling ahead of the Brexit vote, and are long the Swiss franc and the Japanese yen.

Investors are yanking money out of the hedge fund industry due to their poor performance. The HFRI Fund Weighted Composite Index, which measures hedge fund performance, was down 3.04% in the first quarter this year.

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