Comments on: A Return to Alpha … or Not: Random Shots http://www.hedgeworld.com/blog/?p=295 A look behind the hedge fund curtain Tue, 18 Jun 2013 21:52:15 +0000 http://wordpress.org/?v=2.6 By: Robin Ann Johansen http://www.hedgeworld.com/blog/?p=295#comment-2428 Robin Ann Johansen Fri, 11 Dec 2009 20:06:52 +0000 http://www.hedgeworld.com/blog/?p=295#comment-2428 No, you are absolutely NOT missing the point. I'm so amazed over the herd stampede we're witnessing at the moment in the Hedge Fund environment. As a apart of my technical analysis I gauge the sentiment on various markets on a weekly basis and a part of that is looking at the Hedge Funds positions - their exposures. According to the latest ML's Hedge Fund Monitor, the Equity L/S exposure is well above historic levels and that's not all - Hedge Funds right now are behaving like a stampede. They are bullish all over the place and it's crowded! So why are they behaving like this? 1) All the Fundamentalist are generally basing their analysis on unrealistic P/E levels. That creates a false illusion of cheap stocks. 2) Lots of the portfolio managers are former traders who generally follows the crowd. And finally... 3) High Watermarks. For most of the Hedge Fund Industry to generate income once again they have to get by the high watermarks. To cover a 50% loss they have to generate a 100% gain and because of the "Low interest rate/Cheap dollar" carry trade it's actually possible at the moment to generate huge gains by betting against the dollar. So the big question is "Will it continue?" Off course not. The dollar will soon turn around and become bullish. And we all know what that means. No, you are absolutely NOT missing the point. I’m so amazed over the herd stampede we’re witnessing at the moment in the Hedge Fund environment. As a apart of my technical analysis I gauge the sentiment on various markets on a weekly basis and a part of that is looking at the Hedge Funds positions - their exposures. According to the latest ML’s Hedge Fund Monitor, the Equity L/S exposure is well above historic levels and that’s not all - Hedge Funds right now are behaving like a stampede. They are bullish all over the place and it’s crowded!

So why are they behaving like this?

1) All the Fundamentalist are generally basing their analysis on unrealistic P/E levels. That creates a false illusion of cheap stocks.

2) Lots of the portfolio managers are former traders who generally follows the crowd.
And finally…

3) High Watermarks. For most of the Hedge Fund Industry to generate income once again they have to get by the high watermarks. To cover a 50% loss they have to generate a 100% gain and because of the “Low interest rate/Cheap dollar” carry trade it’s actually possible at the moment to generate huge gains by betting against the dollar.

So the big question is “Will it continue?” Off course not. The dollar will soon turn around and become bullish. And we all know what that means.

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