Hedge Fund Stock Exposure Is the Highest in at Least Three Years

(Bloomberg) -- Hedge funds have seen their net stock exposures jump to the highest in at least three years in a spate of short covering and bullish bets on cyclical companies.

U.S. long-short funds have assumed a more risk-on posture amid the $4.6 trillion trough-to-peak rally across some of the industries most exposed to the coronavirus fallout, according to Credit Suisse Group AG.

The data through April 30 sheds light on how professional speculators are tip-toeing back into the likes of financials and industrials which have been trading at multi-year discounts.

Now, violent rotations between riskier equities and defensive names could inject fresh pain on this breed of stock picker.

The S&P 500 is heading for a three-session slump led by cyclical sectors following a barrage of poor data and renewed U.S.-China tensions.

Fund managers are grappling with “the opposing pulls of deteriorating fundamentals set against Fed-inspired optimism,” said Mark Connors, global head of risk advisory at Credit Suisse, in a report dated Friday.

Overall, equity long-short funds were up 4% in April, according to Credit Suisse data derived from the positioning of clients using its prime-brokerage platform.

While their popular long positions including technology outperformed, their rebounding short bets hurt profits. All that spurred the cohort to cover some of their short positions in cyclical industries.

Overall, gross exposures -- long plus short positions -- remain relatively low across hedge funds, especially among quantitative firms that deleveraged by the most on record during the March sell-off.

As for macro managers and commodity trading advisors, which mostly speculate with futures, net equity exposure is the lowest in about a year, according to the bank's data.