Hedge managers cautious, build cash - 500 Beiträge pro Seite

[StarnetGermany]

By Michael Molinski, CBS MarketWatch

NEW YORK (CBS.MW) -- Hedge fund managers sold technology and other growth stocks in April and cautiously built up cash positions, a sign that they expect further drops in the stock market over the next few months, a hedge fund tracking firm said Friday.

Hedge funds on average brought their "long" bets on the stock market to about 50 percent of holdings, down from 60 percent a month earlier, and put those extra 10 percentage points into cash as a safe holding, said Charles Gradante, chief investment officer at Hennessee Hedge Fund Advisory Group.

"Hedge funds are selling into the rallies and generating cash," Gradante told CBS.MarketWatch.com in an interview. "They expect the market correction to continue."

Hennessee also released its April hedge fund index on Friday, showing hedge funds on average posted a negative 3 percent return on the month, about even with the Standard & Poor`s 500 Index but easily outpacing the 15.6 percent drop in the Nasdaq. Hedge funds are up 4.35 percent this year through April 30, according to the index, vs. a 0.78 percent drop in the S&P and a 5.13 percent drop in the Nasdaq. The Hennessee Index is a statistical sampling of more than half of the 3,000 hedge funds the firm tracks.


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Updated:
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Hedge funds are advanced investment funds that use techniques such as short selling and options to make money in a variety of market environments and sectors. Their clients are mostly wealthy individuals and institutions.

Last month, hedge funds that specialize in short selling -- borrowing shares and selling them, with the intention of buying them back later at a lower price -- were easily the best-performing group, gaining 6.8 percent. Merger arbitrage funds, which wager that the difference in price between a company being acquired and the company acquiring it will narrow, gained 2.6 percent in April, while "market neutral" funds, which attempt to buffer their stock picks against turns in the market, gained 2.07 percent.

The worst-performing hedge funds were those dedicated to Latin America, down 11.9 percent; followed by Pacific Rim funds, down 9.0 percent; growth funds, down 8.2 percent; emerging market funds, down 7.9 percent; and technology funds, down 6.3 percent.

Gradante said it`s the economy, and not the high valuations of tech stocks, that has hedge funds managers worried. Reports that showed first-quarter increases in labor costs, consumer spending, inventories and production, along with lower unemployment, have created an air of pessimism for the stock market, he said.

"We at Hennessee see three, maybe four more rate hikes amounting to 75 to 100 basis points this year, assuming inflation is contained," he said. "If the second quarter shows inflation, we could see 150 to 175 basis points in rate hikes."

"The market is interpreting the first-quarter (economic) numbers as being ho-hum, but hedge funds are interpreting them as being very negative," Gradante said. "Unless the second quarter shows dramatic reduction in consumer demand, hedge funds will continue generating cash and taking money out of the market."

Specifically, Gradante said hedge funds "picked up some bargains during the big drops on April 14 and 17. But since then they haven`t been adding any new money. They bought companies like Brocade (BRCD: news, msgs), JDS Uniphase (JDSU: news, msgs), Broadcom (BRCM: news, msgs), Cisco (CSCO: news, msgs) and Intel (INTL: news, msgs) but have now been selling those companies on rallies because of the economic data."

Hennessee also defended hedge funds as a group, in the wake of the large losses suffered by the industry`s two most notable personalities -- George Soros and Julian Robertson. Their demise doesn`t point to a downfall in hedge funds but rather shows "that the macro strategy has gone from a market of fundamentals to a market of technicals," Hennessee said in a statement.

"Technical analysis of trends has been very successful for the last two years, despite the fact that they ignore fundamentals," the statement said, adding that the key problem with Soros` Quantum Fund and Robertson`s Tiger Fund was that they both put too much weight on company fundamentals.

[StarnetGermany]

http://cbs.marketwatch.com/archive/20000505/news/current/hed…


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