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The Opalesque Team:

Stocks: Up Equity hedge funds rose 1.88% in August (according to Hennessee Long/Short Index) but still trailed the overall equity markets by over 1%. Managers are logging gains on the ongoing stock rally, but are also consistently holding the line with firm hedges in expectation that a correction will eventually occur.

“…Equity markets are no longer undervalued,” said Hennessee Co-Founder Charles Gradante in a statement. “The P/E ratio for the S&P 500 Index has gone from a March low of 10x to over 18x during the month of August. With September being one of the worst months historically, we are cautious of a pull back in the markets.”

It is the second month that equity hedge funds have trailed behind the larger equity markets, as July showed an even wider discrepancy between hedge funds and the markets as stocks rallied. But it looks as though hedge fund managers are not wavering on their hedges, just one of the few signs that widespread expectations for a correction are still in play.

Bob Doll, BlackRock’s Vice Chairman and Global Equities CIO, who voiced a bullish long-term outlook on equities in his weekly investor communication, still took time to warn investors that there was potential for a correction.

“…investors should be prepared for some additional near-term corrective action. Stocks are no longer as cheap as they were several months ago, conditions may be over- bought and there is still a great deal of......................

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