Hedge funds are growing increasingly pessimistic about the outlook for global equities, even though markets have already sold off sharply since the start of 2022.
Top-performing managers including Lansdowne Partners’ Peter Davies and BlackRock’s Alister Hibbert have become more bearish on the prospects for parts of the market or on stocks overall, with high-growth technology shares a particular area of concern.
“Life is going to be much more difficult for investors”, wrote Crispin Odey, founder of London-based Odey Asset Management, in a note to clients seen by the Financial Times. “Outages, shortages, strikes and war will come along.”
The manager has sharply increased cash positions in his Opus fund, which typically places bets on companies’ share prices rising and is up around 7 per cent this year, the document shows. His European fund, which is able to bet on prices rising and falling, is up by about 87 per cent this year, according to numbers sent to investors.
Meanwhile, Hibbert, who runs BlackRock’s $9bn Strategic Equity hedge fund and has one of the strongest long-term track records in the sector, has recently shifted his portfolio so that bets on falling stock prices exceed bets on rising prices, said people familiar with the fund.
Such a move is unusual for hedge funds, which tend to retain a bias to rising prices because stocks are expected to rise over the long term. BlackRock and Odey declined to comment.
Other managers have also become more cautious. Hedge funds have significantly reduced the overall size of their bets recently, according to a client note from Morgan Stanley’s prime brokerage team, seen by the FT.
And in the US, the difference in size between funds’ bets on rising prices and their bets on falling prices is now close to its lowest level since 2010, in a sign of how wary managers have become, the note showed.
Such bearishness among hedge fund managers comes as the Federal Reserve and other central banks have started to raise interest rates aggressively to curb inflation. That tightening of monetary policy has knocked the shares of speculative companies whose valuations are flattered by ultra-low borrowing costs. The technology-heavy Nasdaq Composite share gauge is down more than a fifth this year.
Minutes of the Fed’s early May rate-setting committee meeting showed that officials thought a “restrictive” monetary policy, with faster rate hikes, a longer tightening cycle, or both, “may well become appropriate”.
However, stocks last week snapped their longest losing streak since 2001 on hopes that inflation may have peaked.
“We’re in the early stages of money coming out of it [technology stocks],” said Davies, partner at Lansdowne and one of Europe’s most influential investors. “I don’t get the impression many people have sold out of tech.”
He pointed to the amount of money that very big tech companies had to spend to compete with rivals, which he said detracted from cash returned to shareholders.
“I’d be very reluctant to get engaged there [at current prices],” he said.
Meanwhile, Sir Michael Hintze, founder of $19bn-in-assets London-based hedge fund firm CQS, has been positioning for a sell-off in growth stocks. A wager on the Nasdaq falling relative to the Euro Stoxx index has, in turn, paid off for him, according to investor documentation seen by the FT.
Hintze said in the documents that he was expecting “ongoing market volatility and dislocations”.
CQS declined to comment.
