Hedge Funds Capitulating Buy Most Stocks Since 2010
By Nikolaj Gammeltoft and Whitney Kisling - Mar 26, 2012 3:25 AM ET
Hedge funds trailing the Standard & Poor’s 500 (SPX) Index for the last five months are giving up on bearish bets and buying stocks at the fastest rate in two years.
A gauge of hedge-fund bullishness measuring the proportion of bets that shares will rise climbed to 48.6 last week from 42 at the end of November 2011, the biggest increase since April 2010, according to data compiled by the International Strategy & Investment Group. The Bloomberg aggregate hedge fund index gained 1.4 percent last month, lagging behind the Standard & Poor’s 500 Index by 2.65 percentage points.
Money managers struggling to catch up with the gains have contributed to the rally that pushed the S&P 500 up 27 percent since October as economic reports beat estimates. Market bulls say they are a continuing source of cash that can move stocks higher. Bears say capitulating hedge funds are further evidence that equities have risen too far, too fast as economic growth remains sluggish, warning that the pool of potential buyers is being depleted.
“It’s encouraged me to gradually increase my exposure to stocks,” Barton Biggs, founder of hedge fund Traxis Partners LP in New York, said in a March 23 phone interview, referring to an improving economic outlook. “The shift has occurred gradually in the six or so months since the beginning of October. I’d be inclined to raise my net long further because the potential to the upside would be greater” should the S&P 500 fall 5 percent to 7 percent, he said.
Biggest Shorts
Short bets reached a five-year peak in October 2008 just before the S&P 500 started a rally that has lifted it 107 percent over three years, according to data compiled by ISI and Bloomberg. Hedge funds trailed the index for six of the first seven months of that advance. Overall short interest reached 4.86 percent of outstanding U.S. shares in July 2008, according to data compiled by NYSE Euronext.
Companies with the most shares borrowed and sold by short sellers have led this quarter’s rally as gains forced bearish traders to repurchase them. Sears Holdings Corp. (SHLD) has returned 128 percent for the biggest gain in the S&P 500 as short interest fell to 8.8 percent of outstanding shares, the lowest since August 2010, according to New York-based Data Explorers. Bank of America Corp. (BAC) and Netflix Inc. (NFLX) have each increased more than 73 percent and seen a drop in pessimistic bets this year.
more:
http://www.bloomberg.com/news/2012-03-25/hedge-funds-capitulating-buy-most-stocks-since-2010.html
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