Salient to Investors:
Hedge funds are turning away from a rally in the global stock market for the first time this year. The ratio of bullish to bearish bets is below historical averages.
Bulls say gains will rise as managers who have trailed benchmark indexes most of the year buy. Bears say managers fueled previous rallies and June rally will fizzle.
Michael Strauss at Commonfund is bullish because of the underexposure of hedge funds.
Oscar Sloterbeck at ISI said managers have not been chasing the recent rally.
Uri Landesman at Platinum Partners said hedge-funds sometimes act as a group, which means big moves either way. Landesman said a few thought-leaders start and copy-cat funds pile on – for most people to go against the trend, it’s nice to have smart money behind them so they can tell their client or boss that so-and-so is doing it.
Hedge Fund Research said $20 billion was deposited into hedge funds in Half1 2012 versus $90 billion of withdrawals from US equity mutual funds in 2012, a fifth straight year.
Jack Ablin at BMO Private Bank said there’s latent buying power in hedge funds but not in traditional places.
Jeffrey Sica at SICA Wealth Management said hedge funds won’t chase returns or overexpose themselves to more risk as the stock market becomes vulnerable to political turmoil in the U.S. – the fiscal cliff – and as Europe’s debt crisis worsens. Sica said hedge funds are ready to accept underperformance as a consequence of their concerns.
Robert Pavlik of Banyan Partners said money managers will be forced to buy more equities to paint their portfolios during Q4 to avoid client redemptions.