Friday, December 9, 2016
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Exodus from Hedge Funds: Bullish Contrarian Indicator or Non-Event?

Here was the story from Reuters this past Friday, from Laurence Fletcher:

Client demands to pull money out of hedge funds rose to their highest level in more than three years in December, at the end of a year that has left many investors disappointed with performance.

Hedge fund administrator SS&C GlobeOp’s forward redemption indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of assets under administration, measured 6.19 percent in December.

This was the highest level since September 2009 and almost double the level just two months ago. A year ago, the index measured 4.58 percent.

After a tough time during the credit crisis, hedge funds have managed to avoid a third year of losses in five in 2012, but their gains have lagged stock market indexes.

Do these hedge fund withdrawals amount to a bullish contrarian indicator, being that sentiment is so dour? Or, is this simply a reflection of a watered-down hedge fund industry that needs to shrink, courtesy of market forces?

Speak your mind in the comments section, please.

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  1. Frog

    I think that this is a contrarian bullish indicator. It’s likely that the market has been difficult,& has frustrated people & scared them. And now they want out– just before a very good year happens.

    Of course, there are no certainties in the market. But this scenario looks like a high probability.

  2. allottedebauchery

    Marginally justified fear, plain and simple. Don’t make this more complicated than it really is; people are afraid.

  3. Hawaiifive0

    Yes .. A contrarian idicator. I’m betting liquidity finds its way into equities and ultimately metals and miners.

  4. Mad_Scientist

    Maybe the hedgies are right on being bearish but their timing is off? Then it’s only a matter of time before they score big, as long as they maintain their current stance.

    Or it could be that their bearish posture was simply wrong and will continue to be wrong.

  5. dvk1970

    I dont think it is a contrarian indicator. 2013 looking at the research I follow could see some serious shake & bake action….like we havent seen for some time. The investors getting their money out are well informed. We know some events or certain actions are leaked weeks/months in advance in this market so I pay close attention when the “informed” start to move. But 2013 could offer us a serious tradeable bottom that will offer us one of those longer term investment opportunities that only occurs a few times during our investing lifetime as an inflation driven 1990’s booming equity market will be back again after a big dip.

    I will be preparing for an authentic sub 2.25 PPT oversold signal in 2013.

    Happy trading!

  6. Bozo on a bus

    My two cents… this is hot money not in it long term, and hedge funds have not set expectations well. People are expecting positive returns when the market drops, and above market returns when the S&P goes up. But hedge funds have not hedged very well, either. I’m not reading too much into it either way.

  7. jimmy_two_times

    80B/mth courtesy of the clam. Just need the fat casts in DC to get tehri shir together and this could run hard. so bullish.

  8. Frog

    “Client demands to pull money out of hedge funds rose to their highest level in more than three years in December”

    Okay, a little more than 3 years ago was some time in 2009. Hmm. This certainly was a contrarian indicator back then. Taking your money out of the market during 2009, that is.

  9. Mr. Partridge


    this is a fact and not an indicator of anything for me – bullish or bearish…
    Hedge funds performance simply sucks – this is the result of it.

  10. Frog

    Interesting idea, Dvk., up above. Do you have some reason to believe that these folks are the “Smart Money”– or not necessarily smart but Insider Information Possessing Money?”

    I think I read that most hedge funds don’t beat the S&P. If so, I wouldn’t expect that the average hedge fund investor is particularly informed or wise about money, since they could just buy the SPY & get a better return on their own. Of course that’s a separate issue from whether they have insider info on the economy.

    That’s the dilemma of figuring out what is a contrarian indicator & what isn’t. You have to figure out whether a situation is due to Smart Money or Dumb Money.

    Max Pain Theory regarding Options Expiration is based on the idea that Smart Money never buys options but only sells them. Which must be incorrect– since Max Pain Theory seems to work no better than a coin flip.