Hedge managers bullish on shares, but still shun US debt and gold

Equities on both sides of the Atlantic could be set for a run after research revealed monthly bullishness among hedge fund managers for US shares jumped by 60% in July, and an extremely low portion of managers feel Europe’s shares are overbought.

By 1600 Greenwich Mean Time, however, major US and European indices were trending lower. The Dow Jones Industrial Average was off 0.4% while the Dax and Cac 40 were down 1.9% and 1.6% respectively.

Gold was 0.3% lower.

Notwithstanding all this, bullishness among hedge fund managers on the S&P 500 index increased from 27% feeling optimistic in June, to 43% last month.

It was the largest share of equity bulls in the hedge fund community recorded since December 2010, and only the second month this year the group was “meaningfully bullish” on the asset class, according to Sol Waksman, founder BarclayHedge, which published the findings in conjunction with TrimTabs Investment Research today.

“Hedge fund sentiment is a decent leading indicator, so the shift could help support stock prices in the near term,” Waksman said.

In addition, only 4% of managers polled believe European shares are overbought.

This view may explain the “huge year to date inflow”, of 23.6% of assets, into European equity ETFs.

“That’s a lot of money chasing an asset that posted a negative return of 5.1% in the past three months,” Waksman said.

Elsewhere, in a sign of just how far sentiment towards traditional ‘safe’ assets has changed, hedge fund managers were found to be “especially bearish” on US Treasuries, while believing gold, the world’s other primary safe haven, is overbought.

Some 36% of managers picked it as the most overbought asset in a list also including oil, US equities, Treasuries, and European equities.

“That result surprises us,” said Minyi Chen, vice president of quantitative research at TrimTabs. “The precious metals flow data we track daily does not scream ‘bubble’, and speculative traders had much larger net long positions on gold futures in August and December of last year.”

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