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Hedge Funds Piled Into Financials Last Quarter

Date: Thursday, April 19, 2012
Author: Brendan Conway, Barron's

Hedge funds: We just canít get enough of the financial sector.

Bank stocksí strong first quarter was also a time when funds were gobbling up the sector, judging by new data from Credit Suisseís (CS) Pankaj Patel. We wonít get a systematic look at big fundsí holdings until 45 days after the quarter, with federal 13F filings. But it looks like a great many managers werenít deterred by John Paulsonís recent failure to replicate his post-financial crisis success in this area.

By Patelís data, pulled from the firmís prime services group, financials enjoyed the biggest increase in hedge-fund portfolios of any sector, at 3.2%.

More detail:

  • Fund managers have 45 days after the quarter end to file their 13F reports. To get a timelier update on sector positioning this report examined the aggregate sector exposures provided by our Prime Services group.
  • Aggregate Financials sector exposures in hedge fund portfolios have increased since the beginning of the year. The Financials sector had the highest increased at 3.2% and the Materials sector trailing at 2.3%, respectively. This is not surprising as the S&P 500 Financials sector returned over 18% for the year beating the S&P 500 by over 8%. Part of this increase in exposures is do the performance of the Financials sector, however when we look the exposures relative to the S&P 500 we see that relative weights have also been increasing.
  • We see other positive news for the Financials sector. Aggregate level short interest has been gradually declining as we have seen five consecutive decreases over the past three months. Valuations rations have increased across all sectors with the Financials sector seeing the largest growth. The forward 12-month PE increased by over 11% since beginning of the year. Also the Financial sector was the only sector to have positive four-week Q1/2012 EPS revisions. And despite the sell off after the release of the FOMC minutes, the Financials sector weight within the S&P 500 has held steady at 15% and the weights among hedge funds have increased by a percentage point.