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Bailey McCann, Opalesque New York: Hedge funds of all types are cutting market exposures, according to the latest Hedge Fund Monitor from Bank of America Merrill Lynch Global Research. Market Neutral, Equity Long/Short and Macros all reduced market exposure, with Market Neutral and Long/Short Equity cutting exposures below historical averages. Hedge fund cash holdings & net exposures are back to second quarter 2007 pre-financial crisis levels.

The Global Diversified Hedge Fund Index was up 0.38% in May, underperforming the S&P 500 index by 170bps. Preliminary readings show that Event Driven & Equity Long/Short strategies performed the best, up 2.06% and 1.08%, respectively. Managed Futures performed the worst and was down 2.96%.

In currencies, the US Dollar moved back into a crowded long while funds covered shorts in the Euro. Currency positions are sizable, and volatility is expected to continue. In addition, they aggressively bought 10-yr Treasuries, but doubled their shorts in 2-yr Treasuries. Trades are back to risk-on.

In commodities, gold and silver remain in the buy zone. Funds bought soybean, sold corn, and reduced their shorts in wheat. WTI crude oil remains in a crowded long; heating oil remains a crowded short.

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