BofA update shows where active managers are putting money
Investing.com - Macro and quantitative hedge funds have "gone cold on equities," possibly signaling poor returns for stocks going forward, according to macro strategist Simon White.
In a column for Bloomberg, White noted that hedge funds have had a "tough 2025" so far, trailing the S&P by roughly five percentage points.
Year-to-date, the benchmark S&P 500 has risen by more than 8%, bouncing back after a swoon in April fueled in large part by concerns over President Donald Trump’s sweeping tariff policies.
According to White, the worst of these hedge fund laggards are trend-following commodity trading advisers, as well as quant funds -- which are often based on numerical data -- and macro funds, which aim to benefit from larger market moves rather than specific stocks.
Macros and CTAs, in particular, have also seen their sensitivity to the benchmark S&P 500 drop to near zero, White added.
"Are they onto something? They might be. When macro and CTA funds go short stocks and retail is long as they are now [...], that has historically presaged weaker equity-market performance over the next 1-3 months," White wrote.
Meanwhile, Goldman Sachs’ most-shorted stocks basket has spiked at a near record pace and an indicator of speculative trading from the bank -- partially made up of meme stocks and loss-making firms -- stands at over three-year highs, White noted, adding that this could be a sign of "fear morphing into greed."
"[B]ecause greed is seeping into the rally [...] we should pay special attention to fast money’s wariness," White argued.
Complacency may also be creeping into wider sentiment, as investors broadly become more certain that the severity of Trump’s trade war will not be as bad as initially feared, White said. The strategist noted a decline in nearer-dated implied volatility relative to its longer-dated version, adding "[t]he market is in effect saying there are risks coming down the pipeline, but they don’t matter today."
Still, White said it remains possible that macro and quant funds have been reinstating long positions in recent weeks. If that is the case, he flagged that, with the returns of these funds lagging, "they, along with anyone else abandoning themselves to this stubborn rally, had better hope they are right."