Hedge funds ramp up market bets as volatility brings the asset class back into favor

Hedge funds ramp up market bets as volatility brings the asset class back into favor

The acute market volatility isn’t inflicting hedge funds to back down.

Hedge funds’ complete gross buying and selling circulation, together with each lengthy and quick bets, rose for 5 weeks in a row and had the largest notional improve since 2017 final week heading into the Federal Reserve’s fee determination, in response to Goldman Sachs’ prime brokerage knowledge. In different phrases, they’re placing cash to work in an enormous technique to capitalize on this market volatility for shoppers, possible largely from the quick facet.

The trade was dialing up publicity at a time when the Fed rushed to hike rates of interest aggressively to tame decades-high inflation, elevating the odds for a recession. Financial institution of America’s Michael Hartnett even known as investor sentiment “unquestionably” the worst since the monetary disaster.

“Uncertainty over inflation and tightening policy may spur more volatility. This speaks to hedge fund strategies,” mentioned Mark Haefele, world wealth administration CIO at UBS. “Hedge funds have been a rare bright spot this year, with some strategies, like macro, performing particularly well.”

Hedge funds gained 0.5% in August, in comparison with the S&P 500’s 4.2% loss final month, in response to knowledge from HFR. Some large gamers are excelling in the market chaos. Citadel’s multistrategy flagship fund Wellington rallied 3.74% final month, bringing its 2022 efficiency to 25.75%, in response to an individual conversant in the returns. Ray Dalio’s Bridgewater gained greater than 30% via the first half of the 12 months.

On the quick facet, hedge funds did not flip overly bearish regardless of the powerful macro setting. JPMorgan’s prime brokerage knowledge confirmed the neighborhood’s shorting exercise has been much less lively than in June, and shorts added have been extra targeted on exchange-traded funds than single shares.

“In terms of how much HF shorting we see, it’s not reached the extremes of June and it has been more in line with the magnitude of longs added,” JPMorgan’s John Schlegel mentioned in a Wednesday observe. “It seems there’s a lack of willingness to get as extremely bearish as funds were earlier this year.”

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