For US stocks, hedge funds choose to continue "taking risks"!

UBS Chief Investment Officer Mark Haefele said that the positioning indicates that investors' attitude towards the stock market has returned to neutral, and the S&P 500 index has only dropped 3.4% from its recent high. "After a strong rebound, there have been almost no significant declines."

Data shows that a risk indicator tracking hedge funds shows that they are "increasingly inclined to take risks."

Hedge funds continue to take risks

As SG strategists Arthur van Slooten and global asset allocation director pointed out, the positions of hedge funds, whether long or short, are worth paying attention to as they can reveal trends in the financial markets.

They stated: "After a wonderful summer, we found that hedge funds continue to adjust their positions upwards, and it is clear that they are taking risks."

They illustrated this with the multi-asset risk indicator (SG MARI), which categorizes hedge fund positions as risk on or risk off. The indicator is currently at its highest level since the summer of 2018, at 1.52, with a peak of 2.76.

"The current peak has lasted for nearly 13 months. During this period, the SG Mari index has risen by 2.7 points, making it one of the strongest four surges since 2005," the strategists said, providing the following chart:

Van Slooten and Bokobza stated that fortunately, their risk indicator MARI is currently at a level "still below the area indicating investor prosperity," which is a level of 2 or higher.

They said: "That is to say, although there is still some distance from the danger zone, most of the surges in SG MARI (the shaded area in the chart) have been followed by significant declines (the arrows on the chart)." Therefore, think about those hedge funds that bought a large amount of stocks and other assets, and are now withdrawing in large numbers.

In May of this year, the strategists pointed out that hedge funds had inconsistent positions in bonds and stocks. Since then, the short positions in stocks used to hedge against economic recession have been largely offset.

"Therefore, concerns about economic recession seem to have been temporarily abandoned, but it may be at a rather unfortunate moment," the two said.