Credit Suisse based its estimates on data from its prime brokerage accounts, which offer trading and other cash management services to hedge funds.
Defensive Shift
To be sure, hedge fund portfolios still contain more financial stocks than usual, according to Credit Suisse. But since December they’ve reduced their net exposure to banks by 15 percent, which is atypical considering the pending rate hike, Connors said. Before rate increases in 2015 and 2016 hedge funds added finance shares.
While profit-taking alone would be a logical conclusion to the 24 percent rally in the banking industry since the U.S. presidential election in November, evidence indicates a shift toward defensive plays.
Funds increased their gold exposure by two-fold while selling base metals like copper, which benefit from an uptick in growth, Credit Suisse data show. One large category of hedge funds which primarily trade futures, known as macro CTAs, are now net short U.S. equities for the first time since before the election, the data show.
Most notably, hedge funds ditched consumer discretionary companies this year. It follows skepticism that any economic recovery will not help the consumer, putting the onus on Washington to rev up growth through fiscal policy, a notoriously slow process, Connors said.
“Until the rubber meets the road on timing, they’re going to wait,” Connors said. “It’s not a reversal, but it’s definitely taking some chips off the table and getting more defensive.”
This article was provided by Bloomberg News.