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Hedge fund managers' confidence in US equities falter slightly, but they remain bullish overall - Barclays TrimTabs

Monday, January 31, 2011
Opalesque Industry Update - Hedge fund managers are upbeat on U.S. equities but less bullish than a month ago, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for January. About 37% of the 91 hedge fund managers the firms surveyed in the past week are bullish on the S&P 500, down from 46% in January, while 26% are bearish, up from 19%.

“Less upbeat forecasts are somewhat surprising in that hedge fund managers performed exceptionally well in the final four months of 2010,” said Sol Waksman, founder and President of BarclayHedge. “Nevertheless, the January bullish reading is the second-highest since the inception of our survey in May 2010, while the bearish reading is the second-lowest. Hedge fund managers still have plenty of skin in the game.”

Hedge fund managers remain downbeat on the 10-year Treasury note, although they are less bearish than a month ago, while they shifted to neutral from bullish on the U.S. dollar index. A net 8% of managers aim to increase leverage in the coming weeks, down from 11% last month. Meanwhile, a host of other sentiment gauges reveals that investors of all stripes are especially bullish on domestic stocks.

“Even Google search trends underscore the expectation of higher stock prices and stronger economic growth,” noted Vincent Deluard, Executive Vice President at TrimTabs. “Searches for ‘economic depression’ plummeted in the past 18 months. Also, searches for ‘double-dip recession’ have virtually disappeared since August 2010, when the Fed announced QE2, while searches for ‘green shoots’ have spiked in January.”

The share of managers that cites large public deficits in the U.S. as the biggest risk to global economic growth (33%) is identical to the share that cites sovereign debt problems in Europe. Also, 41% of managers do not know what to expect from the Fed in the wake of QE2, but 67% expect bond prices to fall after it ends in June.

“Policymakers have proven wildly successful at keeping market participants guessing about what they will do after QE2 ends,” noted Deluard. “But we feel another round of QE is unlikely to alter the bond landscape. Yields across the curve stand between 30 and 100 basis points north of the 2010 lows despite heavy Fed Treasury purchases. Hedge fund managers are bearish on Treasuries and worried about public deficits, while mom and pop poured a gargantuan $641 billion into bond funds between January 2009 and October 2010. These are just a few of the reasons why we believe bonds are in the beginning stage of a secular bear market.”

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