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

Traders work on the ground of the New York Stock Exchange on September 21, 2022 in New York City.

Michael M. Santiago | Getty Images

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

Hedge funds’ whole gross buying and selling circulation, together with each lengthy and quick bets, rose for 5 weeks in a row and had the largest notional enhance since 2017 final week heading into the Federal Reserve’s fee determination, in line with Goldman Sachs’ prime brokerage information. In different phrases, they’re placing cash to work in a giant method to capitalize on this market volatility for purchasers, probably largely from the quick aspect.

The business 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. Bank of America’s Michael Hartnett even referred to 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,” stated Mark Haefele, international wealth administration CIO at UBS. “Hedge funds have been a rare bright spot this year, with some strategies, like macro, performing particularly well.”

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Hedge funds gained 0.5% in August, in comparison with the S&P 500’s 4.2% loss final month, in line with information from HFR. Some massive 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 line with an individual aware of the returns. Ray Dalio’s Bridgewater gained greater than 30% by way of the first half of the yr.

On the quick aspect, hedge funds did not flip overly bearish regardless of the powerful macro atmosphere. JPMorgan’s prime brokerage information confirmed the neighborhood’s shorting exercise has been much less energetic than in June, and shorts added have been extra centered 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 stated in a Wednesday notice. “It seems there’s a lack of willingness to get as extremely bearish as funds were earlier this year.”

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