Hedge funds are cautious on oil, small caps and emerging market FX, that’s according to Société Générale’s monthly Hedge Fund Watch report.
The report, which draws on data from EUREKAHEDGE, an independent data provider that tracks over 24,686 alternative funds globally, and the Commodity Futures Trading Commission, follows hedge fund positions either long or short on a monthly basis to uncover valuable insights on market trends.
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The most recent report, published on January 13 (data collected up to 29/12), shows a reduction in risk appetite among hedge funds during the early days of 2016 — similar to broader market trends.
Notable changes in sentiment include: net long positions on oil have reached their lowest level since December 2012; short positions on small caps (Russell 2000) have increased; net short positions on EM currencies versus the dollar have all increased and; hedge funds have switched to net long positions on the yen and Swiss franc.
Hedge funds: Conviction by asset class
On an asset class by asset class basis, hedge funds are most positive on the outlook for the Nikkei and sugar with net long positions running 1.4 and 1.6 standard deviations away from the historical average.
In FX, the Mexican Peso and Canadian Dollar are the most hated currencies. Net short positions are 1.6 and 1.65 standard deviations away from the historical average respectively. Interestingly, funds are still net long crude oil, even after recent declines. Crude oil net longs are around 0.1 standard deviations above the historical average.
However, as noted above, net long positions on oil have reached their lowest level since December 2012, although long only positions are still close to the highest level in ten years.
Staying on commodities, hedge funds are most positive on the outlook for sugar and particularly negative on the outlook for wheat. Wheat net shorts are running 2.5 standard deviations below the historical average.
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