×

Hedge Funds Chasing Summer Rally

Hedge funds, mutual funds, high-net worth individuals and sovereign wealth funds increased their net buying in equities for a seventh straight week to the highest level in 5 ½ weeks, according to internal client activity at UBS, one of the biggest wealth managers in the world.

“Both U.S. clients and foreign clients were net buyers of most U.S. sectors,” wrote UBS Strategist Thomas Doerflinger in a report released today. “Only health care and industrials were net sold by U.S. clients.”

The S&P 500 is up 8 percent in July following an April –June swoon that pushed the benchmark into a deep correction. Concern about the Euro region collapsing under the weight of bad Greek and Spanish debt, signs of a sluggish U.S. consumer and a mystifying one-day plunge in the Dow all played a part in scaring investors away.

Better-than-expected earnings have fueled the turnaround this month, along with more clarity on the Euro situation following stress tests of the region’s financial institutions. Once that spark was lit, the UBS data shows investors have piled in, fearful of missing a summer rally.

-----------(scroll down for more)-----------

POLL OF THE DAY

The pressure is on for hedge funds and all large money managers to seek out returns with 2-year U.S. Treasury rates at a record low. Investors are turning to hedge funds for bigger returns in this low-return environment, pouring $9.5 billion into the industry in the second quarter despite their spotty track record during the credit crisis, according to Hedge Fund Research. The danger is that this environment creates a herd mentality, causing short and fast bubbles in different asset classes, but no lasting returns.

With the market stagnating as earnings results wind down, the summer rally could be over before August, according to some investors. A glance at the UBS data over time shows that the market does to peak when client inflows reach an inflection point.

“I’m constructive on the market right now,” said Steve Cortes, founder of research firm Veracruz LLC. “But once the closet indexers catch on, I’m out of there.”

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

______________________________________________________
Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to fastmoney@cnbc.com.

Trader disclosure: On July 28, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman owns (AAPL); Finerman owns (BAC); Finerman’s firm owns (BAC); Finerman owns (CVS); Finerman’s firm owns (CVS); Finerman owns (FLS); Finerman’s firm owns (FLS); Finerman’s firm owns (GLW); Finerman owns (JPM); Finerman’s firm owns (JPM); Finerman’s firm owns (RIMM); Finerman’s firm owns (SKS); Kelly owns (BP) puts; Jon Najarian owns (GLD) puts; Jon Najarian owns (AAPL) call spreads; Jon Najarian owns (MSFT) and short calls; Jon Najarian owns (COP) and short calls; Jon Najarian owns (RRC) and short calls; Jon Najarian owns (MSFT) and short calls; Jon Najarian owns (SYMC) and short calls; Jon Najarian owns (RIMM) and short calls; Jon Najarian owns (IACI) and short calls; Jon Najarian owns (LVS) and short calls; Jon Najarian owns (MGM) and short calls; Jon Najarian owns (XOM) and short calls; Jon Najarian owns (MOS) and short calls; Cortes owns (RSX), (GS), (MS); Cortes is short the S&P 500; Cortes is short the Yen; Cortes is short US Treasuries; Terranova owns (AMZN), (EMC), (CREE), (BRCM), (LRCX), (COP), (AXP), (BMO), (CSX), (PEP), (CVS), (GS), (PCP), (C), (APA), (FCX), (JOYG), (MMM), (MOS), (UAUA), (WYNN), (GOOG), (BBY), (SU), (KOL), (XBI), (SWN), (BAX), (JNPR); Terranova is short (GLD)

For Brian Kelly
Accounts managed by Kanundrum Capital own (ELX)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (VIV)
Accounts managed by Kanundrum Capital own (BAK)
Accounts managed by Kanundrum Capital own (AAPL) calls
Accounts managed by Kanundrum Capital own (UNG)
Accounts managed by Kanundrum Capital are short (GLD)
Accounts managed by Kanundrum Capital are short (RKH)

For Joe Terranova
Terranova works for (VRTS)
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners owns more than 1% of (CASS)
Virtus Investment Partners owns more than 1% of (LDR)
Virtus Investment Partners owns more than 1% of (LPHI)
Virtus Investment Partners owns more than 1% of (MGRC)
Virtus Investment Partners owns more than 1% of (XLB)
Virtus Investment Partners owns more than 1% of (XLP)
Virtus Investment Partners owns more than 1% of (XLY)
Virtus Investment Partners owns more than 1% of (XLI)
Virtus Investment Partners owns more than 1% of (XLK)
Virtus Investment Partners owns more than 1% of (XLU)
Virtus Investment Partners owns more than 1% of (SUBK)
Virtus Investment Partners owns more than 1% of (WDFC)
Virtus Investment Partners owns more than 1% of (YDNT)
Virtus Investment Partners owns more than 1% of (DRYS)

For Dennis Gartman
Funds managed by Gartman own (SJT)
Funds managed by Gartman own (FAX)
Funds managed by Gartman own (BPT)

Tavis McCourt
***No Disclosures***

David Levy
***No Disclosures***

Mike Khouw
***No Disclosures***