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Alternative Market Briefing

Hedge fund leverage returns to 2007 highs, but turnover remains at decade low - Goldman Sachs

Friday, February 22, 2013

Bailey McCann, Opalesque New York: Hedge fund net long exposure rose to 52%, matching the 1Q 2007 high, while turnover remained at decade lows, according to the latest Hedge Fund Trend Monitor from Goldman Sachs. The report follows others in noting that overall hedge funds returned just 8% last year, lagging the S&P 500 by 800bps.

Global macro funds had the most disappointing results returning just 2% compared with the 8% average return of the hedge fund industry overall. "These funds likely struggled trying to time the swings in risk sentiment that drove asset performance in the US, Europe, and Asia," report authors write of the performance.

Among other interesting trends toward the end of the year was hedge funds' move out of Apple and gold and into financials. High hedge fund concentrations also seemed to be a factor influencing lackluster performance. Report authors note that concentrated positions have tended to fair better in upward trending markets but do less well in choppy markets without a clear trend.

At the sector level, hedge funds increased their cyclical overweights. Consumer Discretionary remains the largest overweight, with financials receiving the largest allocations overall. Large-cap stocks now account for over 50% of a typical fund. Report data shows that this trend has been going on for the last ten years and is expected to continue as hedge funds i......................

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