Survey: Hedge Funds More Bullish On Stocks

By Cinthia Murphy,

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After being bearish on theU.S. stock market, many hedge fund managers have had a change of heart and turned bullish on domestic stocks in a reversal that could underpin market action in the near term, the latest BarclayHedge/TrimTabs Investment research survey said.

About 43 percent of hedge fund managers are now bullish on the S&P 500, a sharp increase from only 27 percent the previous month, and the highest number of bullish managers since December, the monthly survey showed. By contrast, bearish sentiment has plummeted to its lowest readings since January.

“This reversal is striking,” Sol Waksman, head of BarclayHedge, said in a press release about the report. “Hedge fund managers were meaningfully bullish on domestic stocks in only one month in the first half of the year.”

“Our research shows that hedge fund sentiment is a decent leading indicator, so the shift could help support stock prices in the near term,” Waksman said.

Investors, indeed, poured more than $4.3 billion into U.S. equity ETFs in July, making the asset class the leading gainer in the month as it snatched nearly a third of all ETF asset inflows, according to data compiled by IndexUniverse.

State Street Global’s SPDR S&P 500 ETF (NYSEArca:SPY), the world’s biggest ETF at $93.3 billion in assets, was, in fact, the most popular fund in July, hauling in enough assets to offset market declines. More than two-thirds of managers surveyed said they found the valuation of the S&P 500 to be fair, if not cheap, according to the TrimTabs report.

Sour On Bonds, Souring On Gold

Hedge fund managers meanwhile remain “very sour” on long-dated Treasurys, the report said. Bullish sentiment on the 10-year note sank to its smallest reading in more than seven months.

“Hedge fund managers have been net bearish on the long end all year, even though the 10-year yield plunged to 2.88 percent in June from 3.75 percent in February,” Minyi Chen, vice president of quantitative research at TrimTabs, said in the report. “Meanwhile, it does not surprise us that managers remain inclined to lever up, because performance has been lacking.”

Managers are not as keen on the gold run, either. Nearly 40 percent of them said gold is perhaps the most overbought asset in the market today, compared with oil, equities, U.S. Treasurys and European stocks, the report said.

Still, investors continued to flock to the precious metal, with funds like the SPDR Gold Shares (NYSEArca:GLD) and the iShares Gold Trust (NYSEArca:IAU) being among the most popular in July. GLD raked in $2.85 billion in the last month, while IAU brought in $631 million.

“That result surprises us,” Chen said. “The precious metals flow data we track daily does not scream bubble, and speculative traders had much larger net long positions on gold futures in August and December of last year.”

“Meanwhile,Europe equity ETFs boast a huge year-to-date inflow of 23.6 percent of assets,” Chen added. “That’s a lot of money chasing an asset that posted a negative return of 5.1 percent in the past three months.”

International equity ranked second in ETF net flows in July, capturing more than $2.8 billion of new investment capital, according to the data compiled by  IndexUniverse.

The two firms, which surveyed 82 managers, track hedge fund flows monthly. BarclayHedge is a closely held Iowa-based research and portfolio management company focused on institutional clients, while TrimTabs is an investment research company.

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Copyright ® 2011 IndexUniverse LLC . All Rights Reserved.

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

This article appears in: Investing ETFs
Referenced Stocks: GLD , IAU , SPY

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