SocGen Hedge Fund Research

Macro Commodities Forex Rates Equity Credit Derivatives

Please see important disclaimer and disclosures at the end of the document

6 April 2010

Global Asset Allocation

Monthly

www.sgresearch.com

SG Hedge Fund Watch

Very, very long on the US$ against �, UK£ and Y

Much longer on Nasdaq and much shorter on Bonds Strategist

Alain Bokobza (33) 1 42 13 84 38

[email protected]

Strategist

Roland Kaloyan (33) 1 58 98 04 88

[email protected]

Strategist

Arthur van Slooten (33) 1 42 13 45 06

[email protected]

Research associate

Ida Troussieux (44) 20 7762 5177

[email protected]

Specialist Sales

Paul Jackson (44) (0) 20 7762 5921

[email protected]

Equity & Equity volatility: Funds have clearly and taken very significant long positions on

US$ assets, especially the Nasdaq, an asset that we also favour. They have also substantially

reduced their net shorts on the S&P500, but maintain a significant net short on small caps.

Currencies: Since the creation of the euro (January 1999), Funds have never so

aggressively sold the Eurozone currency (80,000 contracts net short). Ahead of the UK

election, they have increased their net shorts against Sterling. Overall, they are extensive

buyers of the US dollar against the Japanese yen.

Bonds & Money Markets: While maintaining a significant position against 30-Year bonds,

Funds have very recently but substantially increased their net shorts against the 10-Year US

bond. They appear to be anticipating - as we do - growing fears of inflation and the first rate

hike by the very end of this year.

Energy and commodities: In spite of being significantly net long the US dollar, Funds are

also very long the commodity asset class, strongly disrupting the natural negative correlation

between the two assets. They have recently somewhat reduced their positions on gold

(although these remain long overall), switching into oil and copper, while staying away from

wheat (strong net shorts).

10 year Bonds – a strong increase in net shorts Nasdaq – significant long positions

-250

-200

-150

-100

-50

50

M ar M ay Jul Sep Nov Jan M ar-250

-200

-150

-100

-50

50x 1000

Seller o f 10 Year T-Notes

Buyer o f 10 Year T-Notes

-10

-5

0

5

10

15

20


-5

0

5

10

15

20x1000Buyer o f Nasdaq

Seller o f Nasdaq

(contracts of $100,000 face value) Source: SG Cross Asset Research, CFTC

Net positions on NASDAQ 100: Combination of standard ($100) contracts and E-Mini contracts ($20) Source: SG Cross Asset Research, CFTC

In this report “hedge funds” refers to all non-commercial positions reported to the CFTC.

Latest data as of 26/03/2010, released 30/03/2010.

Contents 2-3 - Equity & Volatility

4- Bonds & Money Market

5- Currencies

6-7- Energy & Commodities

8-9- LT view (since 1993)

10- Methodology

mailto:[email protected]

SG Hedge Fund Watch

6 April 2010

2

US Equities (net positions, positions as % of total Ol (E-Mini contracts inc.), price over the last 12 mths)

Hedge fund net positions on S&P 500 S&P 500 price & non-commercial positions on total open interest (OI)

-40

-20

0

20

40

60

M ar M ay Jul Sep No v Jan M ar-40

-20

0

20

40

60x1000B uyer o f S&P 500

Seller o f S&P 500

8%

10%

12%

14%

16%

18%

20%

Mar May Jul Sep Nov Jan Mar600

800

1000

1200 S&P500 rises (rhs)

S&P500 falls (rhs)

Net positions on S&P 500: Combination of standard ($250) contracts and E-Mini contracts ($50) Source: SG Cross Asset Research, CFTC

S&P500 price: black line, rhs, Non commercial OI includes S&P500 E-Mini total open interest Source: SG Cross Asset Research, CFTC

Hedge fund net positions on Nasdaq Nasdaq price and non-commercial positions on total open interest (OI)

-10

-5

0

5

10

15

20


-5

0

5

10

15

20x1000Buyer of Nasdaq

Seller o f Nasdaq

0%

10%

20%

30%

40%


1200

1400

1600

1800

2000 Nasdaq rises (rhs)

Nasdaq falls (rhs)

Net positions on NASDAQ 100: Combination of standard ($100) contracts and E-Mini contracts ($20) Source: SG Cross Asset Research, CFTC

Nasdaq 100 price: black line, rhs Non commercial OI includes NASDAQ 100 E-Mini total OI Source: SG Cross Asset Research, CFTC

Hedge fund net positions on Russell 2000 Russell 2000 price and non-commercial positions on total open interest (OI)

-100

-80

-60

-40

-20

0

20


-80

-60

-40

-20

0

20x1000Buyer of Russell 2000

Seller o f Russell 2000

5%

9%

13%

17%

21%

25%


400

500

600

700 Russell2000 rises (rhs)

Russel2000 falls (rhs)

Net positions on Russell 2000: E-Mini contracts on ICE ($100) Source: SG Cross Asset Research, CFTC

Russell 2000 price: black line, rhs Source: SG Cross Asset Research, CFTC

Over the last two weeks, hedge funds have more than halved their net short positions on the S&P.

A further increase in already significantly long positions on the NASDAQ.

SG Hedge Fund Watch

6 April 2010 3

Equity volatility & Equities (net positions, positions as % of total Ol, price over the last 12 mths)

Hedge fund net positions on VIX VIX price and non-commercial positions on total open interest (OI)

-30

-20

-10

10

Mar May Jul Sep Nov Jan Mar-30

-20

-10

10x 1000Buyer of Vix

Seller of Vix

0%

10%

20%

30%

40%

50%


24

36

48

60 Vix rises (rhs)

Vix falls (rhs)

(VIX X $100.00), dashed line: no reported data Source: SG Cross Asset Research, CFTC

VIX price: black line, rhs, dashed line: no reported data Source: SG Cross Asset Research, CFTC

Hedge fund net positions on Nikkei Nikkei price and non-commercial positions on total open interest (OI)

-8

-4

4

8

12


-4

4

8

12x 1000Buyer o f Nikkei

Seller o f Nikkei

10%

20%

30%

40%

M ar M ay Jul Sep Nov Jan M ar7,000

9,000

11,000

13,000 Nikkei rises (rhs)

Nikkei falls (rhs)

(Nikkei X $5.00) Source: SG Cross Asset Research, CFTC

Nikkei price: black line, rhs Source: SG Cross Asset Research, CFTC

SG Hedge Fund Watch

6 April 2010

4

Bonds (net positions, positions as % of total Ol, price over the last 12 mths)

Hedge fund net positions on US 10Y Treasury Notes

US 10Y T-Bond yield and non-commercial positions on total open interest (OI)

-250

-200

-150

-100

-50

50


-200

-150

-100

-50

50x 1000

Seller of 10 Year T-Notes

Buyer of 10 Year T-Notes

5%

10%

15%

20%

25%

M ar M ay Jul Sep Nov Jan M ar1.6

2.4

3.2

4.0

4.8 10y T-Bond yield rises (rhs)

10y T-Bond yield falls (rhs)


US 10Y T Bonds yield in %: black line, rhs Source: SG Cross Asset Research, CFTC

Hedge fund net positions on US 30Y T Bonds US 30Y T-Bond yield and non-commercial positions on total open interest (OI)

-160

-120

-80

-40

40


-120

-80

-40

40x 1000Buyer o f 30 Year T-Bonds

Seller o f 30 Year T-Bonds

10%

12%

14%

16%

18%

20%

Mar May Jul Sep Nov Jan Mar2.5

2.9

3.3

3.7

4.1

4.5

4.9 30 Year T-Bond yield rises (rhs)

30 Year T-Bond yield falls (rhs)



Hedge fund net positions on 30-Day Fed Funds 30-Day Fed Funds price and non-commercial positions on total OI

-40

10

60

110

160


10

60

110

160x 1000Buyer o f 30 Day FedFundsExpect lower Fed rates

Seller o f 30 Day FedFundsExpect higher Fed rates

10%

15%

20%

25%

30%

35%

40%


99.75

100 30 Day Fed Funds price rises (rhs)

30 Day Fed Funds price falls (rhs)

(interest on $5,000,000 Fed Funds) Source: SG Cross Asset Research, CFTC

30-Day Fed Funds price: black line, rhs Source: SG Cross Asset Research, CFTC

Hedge fund net positions on interest rate SWAPs 10Y-3M

Interest rate SWAPs 10Y-3M price and non-commercial positions on total OI

-4

4

8


4

8x 1000 Buyer o f interest rate SWAPs 10Y-3M

Seller o f interest rate SWAPs 10Y-3M

4%

14%

24%

34%

44%

Mar May Jul Sep Nov Jan M ar90

100

110

120

130 Price rise of 10Y- 3M Interest rate SWAPs (rhs)

Price fall of 10Y-3M IRS (rhs)

(contracts of $100,000 notional principal) Source: SG Cross Asset Research, CFTC

IRS 10YR – 3MO price: black line, rhs Source: SG Cross Asset Research, CFTC

A remarkable increase in net shorts against 10-year USD bonds.

SG Hedge Fund Watch

6 April 2010 5

Currencies (net positions, positions as % of total Ol, price over the last 12 mths)

Hedge fund net positions on €/$ €/$ price and non-commercial positions on total open interest (OI)

-100

-80

-60

-40

-20

20

40

60

M ar M ay J ul Sep N o v J an M ar-100

-80

-60

-40

-20

20

40

60x 1000 Seller o f $ agains t Euro

B uyer o f $ agains t Euro

18%

22%

26%

30%

34%

38%

42%


1.25

1.30

1.35

1.40

1.45

1.50

1.55 EUR weakens (rhs)

EUR strengthens (rhs)

(contracts of €125,000) Source: SG Cross Asset Research, CFTC

€/$ price: black line, rhs Source: SG Cross Asset Research, CFTC

Hedge fund net positions on £/$ £/$ price and non-commercial positions on total open interest (OI)

-80

-60

-40

-20

20

M ar M ay J ul Sep N o v J an M ar-80

-60

-40

-20

20x 1000Seller o f $ agains t £

B uyer o f $ agains t £

20%

25%

30%

35%

40%

45%

50%

M ar M ay Jul Sep No v Jan M ar1.30

1.40

1.50

1.60

1.70

1.80

1.90 GB P weakens (rhs)

GB P strengthens (rhs)

(contracts of £62,500) Source: SG Cross Asset Research, CFTC

£/$ price: black line, rhs Source: SG Cross Asset Research, CFTC

Hedge fund net positions on SF/$ $/SF price and non-commercial positions on total open interest (OI)

-20

-10

10

20

30

M ar M ay Jul Sep No v Jan M ar-20

-10

10

20

30Seller of $ against SF

Buyer of $ against SF

x 1000

5%

15%

25%

35%

45%

M ar M ay Jul Sep N o v Jan M ar0.90

0.95

1.00

1.05

1.10

1.15

1.20 SF weakens (rhs )

SF s trengthens (rhs )

(contracts of SF125,000) Source: SG Cross Asset Research, CFTC

SF/$ price: black line, rhs Source: SG Cross Asset Research, CFTC

Hedge fund net positions on yen/$ Yen/$ price and non-commercial positions on total open interest (OI)

-30

-10

10

30

50

70

Mar May Jul Sep Nov Jan Mar-30

-10

10

30

50

70Seller of $ against JPY

Buyer of $ against JPY

x 1000

15%

20%

25%

30%

35%

40%

45%

M ar M ay Jul Sep Nov Jan M ar80

85

90

95

100

105

110 JPY weakens (rhs)

JPY strengthens (rhs)

Source: CFTC (contracts of ¥12,500,000) Source: CFTC yen/$ price: black line, rhs

Aggressively selling the euro: hedge funds are now 80,000 contracts net short.

Hedge funds are strong buyers of the USD, also against the Japanese yen.

SG Hedge Fund Watch

6 April 2010

6

Energy (net positions, positions as % of total Ol, price over the last 12 mths)

Hedge fund net positions on crude oil Crude oil price and non-commercial positions on total open interest (OI)

-80

-40

40

80

120

160


-40

40

80

120

160x 1000Buyer of crude o il

Seller o f crude o il

30%

32%

34%

36%

38%

40%

42%

44%


40

55

70

85

100

115 Crude o il rises (rhs)

Crude o il falls (rhs)

(contracts of 1,000 barrels) Source: SG Cross Asset Research, CFTC

WTI crude oil price: black line, rhs Source: SG Cross Asset Research, CFTC;

Hedge fund net positions on Natural Gas Natural Gas price and non-commercial positions on total OI

-70

-50

-30

-10

10

30


-50

-30

-10

10

30Buyer o f Natural Gas x1000

Sellers o f Natural Gas

45%

47%

49%

51%

53%

55%


3

4

5

6

7

Natural gas weakens (rhs)

Natural gas Strengthen (rhs)

Net positions on Natural Gas: Combination of standard (10,000 British Thermal Units) contracts and Henry Hub Swap contracts (2,500 BTU) Source: SG Cross Asset Research, CFTC

Natural Gas price black line, rhs Source: SG Cross Asset Research, CFTC

Hedge funds are very long commodities, including oil

SG Hedge Fund Watch

6 April 2010 7

Commodities (net positions, positions as % of total Ol, price over the last 12 mths)

Hedge fund net positions on gold Gold price & non-commercial position on total open interest (OI)

-20

30

80

130

180

230

280


30

80

130

180

230

280x 1000Buyer o f go ld

Seller o f go ld

29%

33%

37%

41%

45%

49%


900

1,000

1,100

1,200

1,300 Gold rises (rhs)

Gold falls (rhs)

(contracts of 100 troy ounces) Source: SG Cross Asset Research, CFTC

Gold price: black line, rhs Source: SG Cross Asset Research, CFTC

Hedge fund net positions on copper Copper price and non-commercial positions on total open interest (OI)

-30

-20

-10

10

20

30


-20

-10

10

20

30x 1000Buyer of copper

Seller o f copper

29%

33%

37%

41%


180

240

300

360 Copper rises (rhs)

Copper falls (rhs)

(contracts of 25,000 pounds) Source: SG Cross Asset Research, CFTC

Copper price: black line, rhs Source: SG Cross Asset Research, CFTC

Hedge fund net positions on wheat Wheat price and non-commercial positions on total open interest (OI)

-70-60-50-40-30-20-10

1020

Mar May Jul Sep Nov Jan Mar-70-60-50-40-30-20-10

1020x 1000Buyer of wheat

Seller of wheat

25%

30%

35%

40%

45%

50%


500

600

700 Wheat rises (rhs)

Wheat falls (rhs)

(contracts of 5,000 bushels) Source: SG Cross Asset Research, CFTC

Wheat price: black line, rhs Source: SG Cross Asset Research, CFTC

Still bullish on gold, despite the recent reduction in net long positions.

SG Hedge Fund Watch

6 April 2010

8

Hedge fund net positions since 1993 (net positions, positions as % of total Ol (E-Mini contracts inc), price)

Hedge fund net positions on S&P 500 S&P 500 price & non-commercial position on total open interest (OI)

-150

-100

-50

0

50

100

93 95 97 99 01 03 05 07 09-150

-100

-50

0

50

100x1000buyer of S&P500

seller of S&P500

0 %

4 %

8 %

12 %

16 %

2 0 %

2 4 %

9 3 9 5 9 7 9 9 0 1 0 3 0 5 0 7 0 9 110

3 0 0

6 0 0

9 0 0

12 0 0

150 0

18 0 0

Net positions on S&P 500: Combination of standard ($250) contracts and E-Mini contracts ($50) Source: SG Cross Asset Research, CFTC

S&P500 price: black line, rhs, Non-commercial OI includes S&P500 E-Mini total open interest Source: SG Cross Asset Research, CFTC

Hedge fund net positions on NASDAQ 100 NASDAQ 100 and non-commercial positions on total open interest (OI)

-40

-30

-20

-10

0

10

20

30

96 98 00 02 04 06 08 10-40

-30

-20

-10

0

10

20

30x1000Buyer o f Nasdaq

Seller o f Nasdaq

0%

10%

20%

30%

40%

50%

60%

96 98 00 02 04 06 08 100

1000

2000

3000

4000

5000

Start date: 16/04/1996 Net positions on NASDAQ 100: Combination of standard ($100) contracts and E-Mini contracts ($20) Source: SG Cross Asset Research, CFTC

Start date: 16/04/1996 NASDAQ 100 price: black line, rhs Non-commercial OI includes NASDAQ 100 E-Mini total OI Source: SG Cross Asset Research, CFTC

Hedge fund net positions on crude oil Crude oil price and non-commercial positions on total open interest (OI)

-100

-60

-20

20

60

100

140

180

93 95 97 99 01 03 05 07 09 11

x 1000

Seller o f Crude Oil

Buyer o f Crude Oil

0%

10%

20%

30%

40%

50%

93 95 97 99 01 03 05 07 09 1110

30

50

70

90

110

130

150

Source: SG Cross Asset Research, CFTC (contracts of 1,000 barrels) Source: SG Cross Asset Research, CFTC; crude oil price: black line,

rhs

SG Hedge Fund Watch

6 April 2010 9

Hedge fund positions since 1993 (net positions, positions as % of total Ol, price)

Hedge fund net positions on €/$ €/$ price and non-commercial positions on total open interest (OI)

-40

-20

20

40

60

80

100

120

99 00 01 02 03 04 05 06 07 08 09 10-130

-80

-30

20

70

120x 1000

Seller o f Euro against $

Buyer o f Euro against $

5%

10%

15%

20%

25%

30%

35%

40%

45%

99 00 01 02 03 04 05 06 07 08 09 100.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Data from 1999 Source: SG Cross Asset Research, CFTC (contracts of €125,000)

Data from 1999 Source: SG Cross Asset Research, CFTC; €/$ price: black line, rhs

Hedge fund net positions on US 10Y Treasury Notes

US 10Y T-Notes price and non-commercial positions on total open interest (OI)

-300

-200

-100

100

200

300

400

500

600

700

-300

-200

-100

100

200

300

400

500

600

700

93 95 97 99 01 03 05 07 09 11

x 1000Buyer o f 10 Year T-Notes

Seller o f 10 Year T-Notes

0%

4%

8%

12%

16%

20%

24%

28%

32%

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 102.0

3.0

4.0

5.0

6.0

7.0

8.0

Source: SG Cross Asset Research, CFTC (contracts of $100,000 face value)

Source: SG Cross Asset Research, CFTC; US 10Y Treasury Notes yield in %: black line, rhs

Hedge fund net positions on US 30Y T Bonds US 30Y T-Bond yield and non-commercial positions on total open interest (OI)

-200

-160

-120

-80

-40

40

80

120

160

93 95 97 99 01 03 05 07 09

x 1000Buyer o f 30 Year T-Bonds

Seller o f 30 year T-Bonds

0%

4%

8%

12%

16%

20%

24%

28%

32%

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 102

3

4

5

6

7

8



SG Hedge Fund Watch

6 April 2010

10

Appendix

CFTC: Commodity Futures Trading Commission The mission of the Commodity Futures Trading Commission (CFTC) is to protect market users

and the public from fraud, manipulation, and abusive practices related to the sale of

commodity and financial futures and options, and to foster open, competitive, and financially

sound futures and option markets.

The CFTC assures the economic utility of the futures markets by encouraging their

competitiveness and efficiency, ensuring their integrity, protecting market participants against

manipulation, abusive trading practices, and fraud, and ensuring the financial integrity of the

clearing process. Through effective oversight, the CFTC enables the futures markets to serve

the important function of providing a means for price discovery and offsetting price risk.

How to read the way SG monitors hedge fund positions CFTC definitions:

Net position The difference between the open long contracts and the open short contracts

held by a trader in any one commodity. Data we use have at least a one week lag with real

positions.

Open interest The total number of futures contracts long or short in a delivery month or

market that has been entered into and not yet liquidated by an offsetting transaction or fulfilled

by delivery.

Time horizon:

ST view (12 months) & LT view (since 1993)

E-Mini Futures contracts and US equity index Futures contracts on CME

Futures on the S&P500, the Nasdaq and Russell 2000 come in two sizes; the large ones are

the standard futures that continue to trade on the floor of the Chicago Mercantile Exchange

(CME); the smaller ones are E-Mini futures (1/5 of the size of a standard CME futures) where

trade is fully electronic. Trading volume in standard futures has now been surpassed by that of

E-Minis, which are now the most highly-traded stock-index futures in the world.

E-Mini S&P 500 futures are legally binding agreements to buy or sell the cash value of the

S&P500 Index at a specific future date. The contracts are valued at $50 x the future price. For

example, if the Mini S&P 500 future price is at 920.00, the value of the contract is $46,000

($50.00x920.00).

On US equity index graphs of this report, we have decided to combine the two contracts.

Example for the S&P500:

We add 1/5 of the E-Mini futures ($50) to the standard contracts ($250).

(S&P 500 Standard X $250.00) +(1/5 E-Mini S&P 500 X $50.00)

SG Hedge Fund Watch

6 April 2010 11

A specific Future contract for each asset class

S&P 500 stock index - Chicago Mercantile Exchange (S&P 500 index x $250.00)

E-Mini S&P 500 stock index - Chicago Mercantile Exchange (S&P 500 index x $50.00)

NASDAQ -100 stock index - Chicago Mercantile Exchange (NASDAQ 100 index x $100)

E-Mini NASDAQ -100 stock index - Chicago Mercantile Exchange (NASDAQ 100 index x $20)

E-Mini Russell 2000 stock index future – InterContinental Exchange.

(Russell 2000 index x $100)

VIX futures - CBOE futures exchange ($100 x VIX)

Nikkei stock average - Chicago Mercantile Exchange (Nikkei index x $5.00)

Wheat - Chicago Board of Trade (contracts of 5,000 bushels)

Crude oil, light sweet - New York Mercantile Exchange (contracts of 1,000 barrels)

Natural Gas - New York Mercantile Exchange (contracts of 10,000 British Thermal Units)

Henry Hub Gas Swap - New York Mercantile Exchange (contracts of 2,500 British Thermal Units)

Copper-grade #1 - Commodity Exchange inc. (contracts of 25,000 pounds)

Gold - Commodity Exchange inc. (contracts of 100 troy ounces)

30-day federal funds - Chicago Board of Trade (interest on $5,000,000 fed funds)

Interest rate swaps 10 yr - 3m - Chicago Board of Trade (contracts of $100,000 notional principal)

US Treasury bonds - Chicago Board of Trade (contracts of $100,000 face value)

10-year US Treasury notes - Chicago Board of Trade (contracts of $100,000 face value)

British pound sterling - Chicago Mercantile Exchange (contracts of £62,500)

Japanese yen - Chicago Mercantile Exchange (contracts of ¥12,500,000)

Swiss franc - Chicago Mercantile Exchange (contracts of SF125,000)

Euro fx - Chicago Mercantile Exchange (contracts of €125,000)

Source: SG Equity Research

SG Hedge Fund Watch

6 April 2010

12

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