Hedge funds have been reducing their exposure to global equities at the fastest pace in over a decade (@TheShortBear). This is from a week ago, I imagine it has only accelerated.
Below is a list of top hedge fund holdings from Goldman. Amazon was the hedge fund favourite at year end (@ecommerceshares).
US stocks are crowded, likely due to recency bias, as the past 15 years have been their best performance 15 year stretch since 1970. (Bridgewater).
The market remains extremely concentrated and dependant on the largest 10 stocks to drive index returns (UBS Returns Yearbook).
Since 2020, in 3 of 5 years the majority of S&P 500 returns have been driven by the top 10 stocks. An active manager’s nightmare.
The Magnificent Seven drove earnings growth expectations until year-end, but their momentum has since stalled (@ISABELNET_SA).
With high expectations baked into US equity market valuations, US equities will have to fundamentally outperform to deliver similar returns to the past decade. Earnings growth matters.
The S&P 500 is unlikely to repeat its past 15 years of returns, given today’s less favorable environment.
Not every market sell-off is the same requiring different defensive strategies to protect portfolios against drawdowns.
Different strategies outperform depending on the type of sell-off. This is the argument for better diversification than a typical stock bond portfolio. Real assets and hedge fund can compliment bond exposures.
![AW ETF WP_07[1].png](https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F3dda68cf-c29c-4058-b160-1b60626c24e8_840x346.png "AW ETF WP_07[1].png")
With the market outlook souring for US equity markets, traditionally investors looked to bonds for protection. With an uncertain inflation backdrop and bonds recently correlating to stocks, it’s unclear how well they will protect portfolios.
Stock and bond correlations in the new millennium have deviated from historical norms. Over the long term, stocks and bonds have been positively correlated, making bonds less effective diversifiers than they have been in the past two decades.
Investors have been rushing into gold.
If you are feeling very down about your portfolio and want to hear the hour long bear case against US assets, listen to the pod below. It’s pretty interesting.
