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Hedge Funds Take Cautious Line on Stocks

WSJ – Wall Street analysts are recommending investors buy stocks of large U.S. companies. But some hedge funds are holding back.

Prominent firms, such as the $14 billion CQS LLP and Passport Capital LLC, which manages $4 billion, have cut their exposure to stocks recently after six straight annual gains for the Dow Jones Industrial Average and three consecutive yearly wins for the S&P 500 index. Hedge funds’ use of borrowed money, or leverage, to amplify the effect of their bets dropped last week to the lowest level in more than two years, Morgan Stanley told clients in a confidential memorandum. The drop in leverage signals a dwindling conviction that markets will push ever higher.

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