Hedge fund managers are retreating from high-risk positions, following a volatile week in the markets as the unwinding of billions of dollars of yen-funded trades and growing concerns of a US recession prompted a brutal sell-off and recovery, according to a report by Reuters.
The report cites research by PivotalPath as showing that while the CBOE Volatility Index closed at its highest level in nearly four years on 5 August, global macro quantitative funds saw losses ranging from 1.5% to 2.5% between 1 August and 5 August, while technology-focused hedge funds saw declines of between 2.5% and 3.5%.
The report quotes Edoardo Rulli, Chief Investment Officer at UBS Hedge Fund Solutions: “We have observed some degree of deleveraging. It’s not a panic, but portfolio managers are scaling back their positions.”
Commodity-trading advisors saw a “sharp unwind” of long equity positions, short yen and short Japanese and 10-year German bonds following weaker-than-expected U.S. job data on 2 August, according to JPMorgan. Goldman Sachs’ prime brokerage meanwhile noted that long-short equity hedge funds reduced their exposure to Japan from 5.6% to 4.8% last week and trimmed portfolio leverage to 188.2%.
Data from the US Commodity Futures Trading Commission and LSEG revealed that hedge funds’ net short position on the Japanese yen has dropped to its smallest since February 2023, signalling a retreat from the yen carry trade.
