Hedge Funds Trim Bullish Nasdaq Bets as Cost of Protection Soars
By Sofia Horta E Costa
Enthusiasm is waning among the largest speculators for the rally that has sent the Nasdaq 100 Index up more than 25 percent in the last 16 months.
Hedge funds lowered their net-long positions on the gauge of technology shares at the fastest pace since January last week, cutting them 31 percent to 46,265 futures, according to data from the Commodity Futures Trading Commission. That?s about half as many as they owned in April. At the same time, options protecting against declines in the equities surged to their highest price ever relative to bullish contracts.
After betting on gains in tech shares for more than two years, hedge funds are starting to grow skeptical. The Nasdaq Composite Index has rallied twice as much as the broader market this year, making some of the pricier tech stocks more vulnerable to market jitters as the Federal Reserve prepares to raise borrowing costs.
?The equity market is getting real about the eventuality of interest rates rising, and you?ve got very highly valued pockets of tech,? said William Hobbs, the head of equity strategy at Barclays Plc?s wealth-management unit in London. ?As rates go up, the cost of capital will increase and your most expensive names should be hardest hit.?
While the Nasdaq Composite has advanced 7.2 percent this year, industries that led its gains have faltered. Biotechnology shares lost as much as 9.1 percent in April, and social-media stocks fell 6.5 percent in less than two weeks.