Only 31 per cent of hedge fund managers are bullish on the S&P 500, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for September. 

About 37 per cent of the 109 hedge fund managers surveyed are bearish on stocks, while 32 per cent are neutral.

“Hedge fund managers were extremely bearish on equities at the end of August, and they remain downbeat even though the S&P 500 soared 8.8 per cent in September,” says Sol Waksman, founder and president of BarclayHedge. “Negative sentiment has proven costly, as the industry underperformed by more than 500 basis points last month. But managers are sticking to their bearish guns; four in ten are forecasting stock prices will fall at least two per cent in the coming weeks.”

About 27 per cent of hedge fund managers are bearish on the ten-year Treasury note, the largest share in four months, while only 24 per cent are bullish. Additionally, 36 per cent are bearish on the US dollar index, while only 21 per cent are bullish. These shares are the largest and smallest, respectively, since May. 

Meanwhile, 19 per cent of hedge fund managers plan to increase leverage in the next month.

“While managers dislike stocks, bonds, and the greenback, many aim to lever up,” says Vincent Deluard, executive vice president at TrimTabs. “Short rates are essentially zero, the ten-year Treasury yields a scant 2.5 per cent, and real interest rates are negative.  Where there’s an incentive to increase leverage, managers will act.”

About 79 per cent of managers attribute record company cash balances to uncertainty about the economic and political/regulatory outlooks, while only 14 per cent cite a lack of profitable investment opportunities. About 28 per cent of managers want firms to use excess cash to pay down debt, while 17 per cent prefer they keep it on the balance sheet.

“Managers want companies to exercise caution,” says Deluard. “Typically, they’d promote acquisitions and capital spending, stock buybacks, and increased dividends. But in a muddy economic environment a month ahead of midterm elections, managers favour hoarding cash and preparing for the worst.”