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“Downbeat views on domestic stocks characterized the first half of 2011,” says Sol Waksman, founder and President of BarclayHedge. “Hedge fund managers were net bearish on the S&P 500 in four of the first six months of the year. The grim mood coincides with weak performance. The Barclay Hedge Fund Index shows a year-to-date return of just 1.8% after increasing 10.9% in 2010.”

June marked another difficult month for many hedge funds.

While hedge fund managers are still expressing a bullish sentiment on the US Dollar Index, they are growing vastly more pessimistic over US Treasuries. “Hedge fund managers may not like Treasuries, but our flow data shows that investors of all stripes are not shying from bonds,” notes Vincent Deluard, Executive Vice President at TrimTabs. “Bond mutual funds, bond ETFs, and fixed income hedge funds continue to post sizable inflows. Meanwhile, hedge fund managers tell us that they aim to increase leverage in the coming weeks even though they are relatively downbeat on stocks. Aggressive bets from this crowd could support equities in the second half of the year.”

Additional expectations from managers include:

• An end to quantitative easing
• Weaker corporate earnings for 2H2011
• Another recession in the next year

“The recent correction in stock prices gave rise to fear,” notes Deluard. “Margin debt decreased for the first time in 11 months, short interest increased to the highest level in six months, and the speculative crowd turned net sellers of equity futures. But equities have rebounded smartly because recent economic data shows that the soft patch was not the start of something more serious, and we are interested to see how managers adjust.”

Source

Kirsten Bischoff