Debt Ceiling: What Hedge Funds Think of the Political Theater

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(List compiled by Andrew Dominguez)

Investors around the world have been on the edge of their seats apprehensively waiting for American politicians to agree on how to manage the Federal government’s unruly finances.

At the end of last weekend, merely two days away from the lawmakers’ crucial deadline, it seemed that a viable deal was close at hand. Numerous reports on the negotiations suggest that the Republicans have been able to force their budget cutting agenda in lieu of a compromise between the GOP and the Democrat White House.

Budget cuts without additional, costly fiscal stimuli could possibly slow the already sluggish American economy and hinder job creation. Prevalent economic theory equates increased government spending with economic stimulus, and decreased spending with economic contraction.

Michael Schuman of TIME believes the debt deal could have a significant effect on the global economy. He foresees two possible scenarios: a negative economic outcome from the budget cuts, and a positive economic outcome from reformed and improved government finances.

The negative economic outcome would come in the case of a slogging American economy. A slower American economy would mean less demand for goods and services worldwide. This would hurt export-oriented economies, including China and a number of developing countries.

The debt deal has also left out many of the details of the specific budget cuts. This uncertainty could make global investors uncomfortable. Schuman argues that budget cuts to defense spending could change the makeup of the global security, with significant consequences on countries like Taiwan and Japan that heavily rely on the US for military protection.

Schuman is also concerned that the “irresponsible brinksmanship and childish squabbling made American political leaders look more like The Real Housewives of New Jersey than the leaders of the free world,” which would make global investors re-evaluate the stability of the American economy.

Schuman concedes that there is a chance that global investors will appreciate the fiscal reforms. Indeed, an American economy that relies much less heavily on debt could be a much more attractive and stable investment environment than its current incarnation.

What do stock investors think of these trends? To help you get started, we compiled data on hedge fund flows, and identified the top five S&P 500 stocks that have seen institutional buying during the current quarter, and the top five S&P 500 stocks that have seen institutional selling.

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List sorted by net shares purchased (sold) by institutional investors as a percentage of the share float.

Top 5 S&P 500 Companies With Institutional Buying  

1. Zions Bancorp. (ZION): Pacific Regional Banks industry with a market cap of $4.03B. During the current quarter, institutional investors have purchased 81.7M shares (net), which represents 46.16% of the 176.99M share float.

2. Alpha Natural Resources, Inc. (ANR): Industrial Metals & Minerals industry with a market cap of $5.14B. During the current quarter, institutional investors have purchased 45.5M shares (net), which represents 39.97% of the 113.83M share float.

3. BlackRock, Inc. (BLK): Asset Management industry with a market cap of $34.32B. During the current quarter, institutional investors have purchased 33.2M shares (net), which represents 31.68% of the 104.81M share float.

4. O'Reilly Automotive Inc. (ORLY): Auto Parts Stores industry with a market cap of $8.2B. During the current quarter, institutional investors have purchased 28.8M shares (net), which represents 21.95% of the 131.23M share float.

5. MetLife, Inc. (MET): Life Insurance industry with a market cap of $43.56B. During the current quarter, institutional investors have purchased 148.5M shares (net), which represents 17.72% of the 838.11M share float.

Top 5 S&P 500 Companies With Institutional Selling

1. Covidien PLC (COV): Medical Instruments & Supplies industry with a market cap of $25.18B. During the current quarter, institutional investors have sold 126.4M shares (net), which represents 25.72% of the 491.47M share float.

2. Cephalon Inc. (CEPH): Biotechnology industry with a market cap of $6.09B. During the current quarter, institutional investors have sold 7.4M shares (net), which represents 10.71% of the 69.09M share float.

3. PulteGroup, Inc. (PHM): Residential Construction industry with a market cap of $2.63B. During the current quarter, institutional investors have sold 33.0M shares (net), which represents 9.89% of the 333.64M share float.

4. Lexmark International Inc. (LXK): Computer Based Systems industry with a market cap of $2.66B. During the current quarter, institutional investors have sold 7.5M shares (net), which represents 9.57% of the 78.41M share float.

5. Akamai Technologies Inc. (AKAM): Internet Information Providers industry with a market cap of $4.52B. During the current quarter, institutional investors have sold 16.8M shares (net), which represents 9.30% of the 180.68M share float.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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