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

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

Michael M. Santiago | beautiful pictures

Strong market volatility does not cause hedge funds to drop in price.

According to key brokerage data by Goldman Sachs, total hedge fund trading volume, including long and short bets, has grown for five consecutive weeks and posted its biggest nominal gain since 2017 last week. before making the Federal Reserve’s interest rate decision. In other words, they are pooling money to capitalize on this market volatility for their clients, probably mostly from the short term.

The industry is increasing its exposure at a time when the Fed rushes to raise interest rates aggressively to rein in decades-high inflation, raising the risk of a recession. Bank of America’s Michael Hartnett even called investor sentiment “unquestionably” the worst since the financial crisis.

“Inflation uncertainty and policy tightening could drive more volatility. That speaks to hedge fund strategies,” said Mark Haefele, CIO of global wealth management at UBS. “Hedge funds have been a rare bright spot this year, with some strategies, like macros, performing particularly well.”

Hedge funds gained 0.5% in August, compared to S&P 500The loss was 4.2% last month, according to data from HFR. Some big players are excelling in the market turbulence. Citadel’s flagship fund Wellington surged 3.74% last month, lifting its 2022 performance to 25.75%, according to a person familiar with the returns. Ray Dalio’s Bridgewater more than 30% increase in the first half of the year.

In the short term, hedge funds did not turn excessively bearish despite the difficult macro environment. JPMorgan’s leading brokerage data shows that community short selling has been less active than it was in June, and further shorting has focused more on exchange-traded funds than stocks. Single.

“In terms of how short-term HF we’re seeing, it hasn’t reached its June peak and it’s more in line with the added long-term level,” said JPMorgan’s John Schlegel. “There seems to be a lack of willingness to get the extremes of discounts like funds from earlier this year.”

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