Hedge funds are increasing their gross exposure to equities to a greater degree than institutional investors are. The total market value disclosed and attributable to equities for the average hedge fund in AlphaClone's universe increased 8% to $3.2 billion in the first quarter of 2011 versus the fourth quarter of 2010. By comparison, the total market value attributable to equities for the average institutional fund decreased by 6% over the same period. The S&P 500 returned 5.4% in Q1 2011.

The latest numbers also indicate that hedge fund equity gross exposures are accelerating. Comparing total market value disclosed and attributable to equities for the average hedge fund versus the measure's moving average over the prior four quarters, we see the spread has increased to 15% in Q1 2011 from 13% in Q4 2010 and 7% in Q3 2010. Conversely, for institutional funds we see a spreads reverse from 4.1% in Q4 2010 to -1% in Q1 2011. Popular hedge funds stocks with the highest sentiment include: 

Stock

Largest Hedge Fund Holder (in $)

Apple (Nasdaq: AAPL) D.E. Shaw
JPMorgan Chase (NYSE: JPM) Viking Global
Google (Nasdaq: GOOG) Citadel Advisors
Microsoft (Nasdaq: MSFT) Fir Tree Partners
Pfizer (NYSE: PFE) Greenlight Capital 

With the latest pullback in the market, and barring any proverbial black swan event(s), we would expect hedge fund equity gross exposures to continue to increase this quarter. But we'll have to see how the numbers look in mid-August, when the next round of filings is due.

Below is the total market value disclosed and attributable to equities in each quarter since 2000 for all funds, just hedge funds, and just institutional funds. The red line in each graph represents the measure's moving average over the prior four quarters. 

Hfbullish

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Maz Jadallah is the founder and CEO of AlphaClone LLC, a San Francisco-based research and investment management firm that tracks hedge fund public disclosures. For more information on the firm's investment approach, visit AlphaClone.

Maz Jadallah doesn't own shares of any of the companies mentioned in this article. AlphaClone LLC is an investment management firm and currently holds shares of Apple, JPMorgan Chase, Google, Microsoft, and Pfizer on behalf of investment clients.

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