Hedge Fund Long Stock Exposure Tags Record At $1.36 Trillion

As tipped a couple of weeks ago in the hilarious “Hedge Funds Are Still Trailing The S&P And Cocaine Ain’t Gettin’ Any Cheaper,” the “2 and 20” crowd has decided that the best way to “outperform” benchmarks that only go up thanks to trillions in central bank liquidity is simply to leverage themselves to the hilt.

“Hedge funds lifted leverage to post-crisis highs as their most popular long positions outperformed in a rising equity market,” Goldman wrote last month, adding that “net exposure (73%) is now roughly in line with its cycle highs reached in 2013, while gross leverage (234%) has soared to new post-crisis highs.”

See the thing is, you can’t fund a weekend of debauchery in the Hamptons by charging people 10 basis points.

But nobody seems to be listening. Because no matter how many times the “superstars” try to explain that Ferraris aren’t cheap and that an eight ball of coke can be here one minute and gone the next depending on how many Xany-ed-out groupies are grabbing for the mirror and straw, you keep buying ETFs and the benchmarks they track keep going up.

So you’ve left them with no choice. They’ll just have to get massively long by overweighting the same stocks that are driving your SPY shares higher and hope that’s enough to push their performance up and justify absurd fees.

Well, on Tuesday we get still more confirmation that that is precisely what the hedgies are doing. Read below as BofAML explains that hedge funds’ net stock exposure is now at a record high of $792 billion and that HF long positions stood at $1.36trillion notional at the start of Q2 2017, tied with the Q2 2015 high…

Via BofAML

Shorts at 52% of AUM, below 3-year average of 55%. Based on the quarterly 13F filings and estimated short positions of the equity holdings of 952 funds, we estimate that hedge funds’ net stock exposure increased to $792bn notional from $730bn QoQ, surpassing the Q2 2015 peak to a record high. HF long positions stood at $1.36trillion notional at the start of Q2 2017, tied with the Q2 2015 high. Gross exposure was near the Q2 2015 record high. In percentage, HF net exposure rose to 73% from 69%, or the highest since the end of 2015. Cash holdings declined to 3.5% from 3.7%, below the five-year average of 3.9%.

Hedge funds increased the stocks long notional by the most since the end of 2013. Stock long exposure as a percentage of AUM rose to 125% from 119%, also the highest since the end of 2015. Short exposure rose to 52% of AUM from a four-year low of 50%, but remained below the three-year average of 55% (Chart 4).

When including ETF positions, net exposure fell to 68%, compared to 64% in previous quarter. Gross exposure rose to 190% from 183%, which jumped to the highest since the end of 2015. Aggregated long notional in ETF reached a record high (our records started from June 2011), while net short notional in ETFs increased by 2% but remained near a 3-year low.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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