Get Shorting
| Jul 24th, 2007 | Filed under: 130/30 | By: Alpha Male |
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Apparently, a call-to-arms has rung out across Hedgistan during the past few months – get shorting. Earlier this month Merrill Lynch observed in a client letter that S&P 500 futures had rarely been shorted this much before. And yesterday, Pensions & Investments ran an interesting story that indicates it’s not just the S&P futures that are experiencing uncommonly high short interests.
According to Bloomberg, short positions in NYSE-listed names now equal 3.3% of overall market cap – the highest it’s been since records began in 1995. At the same time, a team within Merrill that keeps an eye on this type of thing said that “speculative investors” had $45 billion in S&P short positions by July 3 (the highest amount in 3 years). While not an all-time high, Merrill described this as “crowded” and suggested it was a positive indicator for stocks.
Naturally, we were curious about the role, if any, of emerging strategies such as 130/30 and portable alpha.  Far from being a bearish bet on stocks, short positions in these strategies are part of everyday business. Sure, one could argue that the very adoption of these low beta strategies indicates an investor’s view of market beta. But this is a significantly weaker form of market timing than that which Merrill describes as “speculative”.
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