Hedge funds turn more bearish on equities even after rocky start to 2022


Hedge funds are increasingly pessimistic about the outlook for global equities, even though markets have already sold off heavily since the start of 2022.

Top-performing managers, including Peter Davies of Lansdowne Partners and Alister Hibbert of BlackRock, turned more bearish on the outlook for certain parts of the market or on stocks in general, with high-growth tech stocks a particular area of ​​concern.

“Life is going to be a lot tougher for investors,” Crispin Odey, founder of London-based firm Odey Asset Management, wrote in a note to clients seen by the Financial Times. “Blackouts, shortages, strikes and war will come.”

The manager has sharply increased the cash positions of his Opus fund, which typically places bets on rising corporate stock prices and is up about 7% this year, the document said. Its European fund, which can bet on rising and falling prices, is up around 87% this year, according to figures sent to investors.

Meanwhile, Hibbert, who runs BlackRock’s $9 billion strategic equity hedge fund and has one of the best long-term track records in the industry, recently changed his portfolio so that bets on falling stock prices stocks outpace bets on rising prices, people familiar with the fund said.

Such a move is unusual for hedge funds, which tend to favor higher prices because stocks are expected to rise in the long term. BlackRock and Odey declined to comment.

Other managers have also become more cautious. Hedge funds have significantly reduced their overall betting sizes recently, according to a client note from Morgan Stanley’s prime brokerage team seen by the FT.

And in the United States, the size difference between the funds’ bets on rising prices and their bets on falling prices is now near its lowest level since 2010, a sign of manager mistrust, the note said.

Such a bearish trend among hedge fund managers comes as the Federal Reserve and other central banks have begun to aggressively raise interest rates to curb inflation. This tightening of monetary policy has depressed stocks of speculative companies whose valuations are flattered by ultra-low borrowing costs. The tech-heavy Nasdaq Composite stock gauge is down more than a fifth this year.

Minutes from the Fed’s rate-setting committee meeting in early May showed officials believed that “tight” monetary policy, with faster rate hikes, a longer tightening cycle, or two, “may well become appropriate”.

However, stocks ended their longest losing streak since 2001 last week on hopes that inflation had peaked.

“We’re in the early stages of the money coming out of it. [technology stocks]said Davies, a partner at Lansdowne and one of Europe’s most influential investors. “I don’t feel like a lot of people have sold the technology.”

He pointed to the amount of money super-big tech companies had to spend to compete with their rivals, which he said hurt cash returned to shareholders.

“I would be very hesitant to get engaged there. [at current prices],” he said.

Meanwhile, Sir Michael Hintze, founder of CQS, a London-based hedge fund firm with $19 billion in assets, has positioned himself for a sell-off in growth stocks. A bet on the Nasdaq falling against the Euro Stoxx index has, in turn, paid off, according to investor documentation seen by the FT.

Hintze said in the documents that he expects “continued market volatility and disruption.”

CQS declined to comment.

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