Stock Market

Hedge funds feel the pain, watch record S P 500 rally they missed

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NEW YORK: US stocks are vaulting back to all-time highs.

But the smart money isn’t celebrating. Instead, they’re nursing pain.

Hedge funds have seen returns dwindling even as the SP 500 Index marches forward in what has become, by some measures, the longest bull market ever.

An index tracking the performance of funds focusing on equities has fallen in five of the past six weeks, wiping out gains for the year, according to Hedge Fund Research data compiled by Bloomberg. How is that even possible Rupee Blame it on a defensive stance and bad-luck bets.

Net leverage, a measure of risk appetite among hedge funds, has fallen to the lowest level this year.

While the posture would have curbed losses during a market selloff, right now it’s prevented managers from reaping bigger gains. Also hurting are their favorite stocks, notably tech giants such as Facebook Inc.

that have suddenly stopped working.

Meanwhile, their bearish wagers backfired, with the most-shorted stocks jumping for a third week in four. “The consensus was that earnings growth will slow down in the second half of the year.

That’s why they scaled back from positioning in hopes there will be a downturn,” said Benjamin Lau, chief investment officer of Apriem Advisors in Irvine, California, where the firm oversees more than $700 million.

“The momentum for earnings growth, revenue growth is quite strong.

Those kind of upside surprises led to some pains.” The agony is the latest lesson in the costs of turning cautious too early.

While everything from a trade war to emerging-market turmoil threatens the nine-year equity rally, it has still paid to stay bullish with earnings rising the fastest since 2010. Obviously, the defensive measures could still end up working.

Hedge fund clients at Morgan Stanley have reduced their net long exposure to equities to the lowest level since last October.




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