How do you reconcile what the market is telling you regarding the attribution of returns per sector and taking those as positive signals that growth and expansion continue (e.g. tech outperforming utilities), versus the short positioning of the market and how you are discounting those signals vs. the attribution signals? It's obviously a nuanced thought process but let's assume that the hedge funds that are net short and who have been bleeding capital (and continue to do so) all have sophisticated economic models and analysts which are indicating strong nominal/real growth with expanding liquidity. The question then is why do they persist in holding a net short position on the market? Is it due to their own constraints, their long book leverage, or other factors? If the market thru the attribution analysis is saying one thing, similar logic would say that these HFs are also signaling something to the market so there's clearly a deeper nuance to that thought process.
When you are looking at the attribution for a sector then its going to be earnings and valuations decomposed into ratios or a yield.
Comparing these and the realized returns of these with the underlying economic data is how you accomplish this. The positioning dynamics are an overlay in connection with realized returns. Realized returns are directly connected with momentum obviously
So yeah totally get that side of the equation but the second part, which is we are all looking at the same data with similar models with varying levels of sophistication so why does that signaling mean less. In addition to that why with everything being positive is there such a net short position? Like are there factors that force them to be net short (i.e. a LS book) or are the positioned net short because they don't believe in the current macro environment. Either way it's in contrast to what we're seeing in a macro backdrop
How do you reconcile what the market is telling you regarding the attribution of returns per sector and taking those as positive signals that growth and expansion continue (e.g. tech outperforming utilities), versus the short positioning of the market and how you are discounting those signals vs. the attribution signals? It's obviously a nuanced thought process but let's assume that the hedge funds that are net short and who have been bleeding capital (and continue to do so) all have sophisticated economic models and analysts which are indicating strong nominal/real growth with expanding liquidity. The question then is why do they persist in holding a net short position on the market? Is it due to their own constraints, their long book leverage, or other factors? If the market thru the attribution analysis is saying one thing, similar logic would say that these HFs are also signaling something to the market so there's clearly a deeper nuance to that thought process.
When you are looking at the attribution for a sector then its going to be earnings and valuations decomposed into ratios or a yield.
Comparing these and the realized returns of these with the underlying economic data is how you accomplish this. The positioning dynamics are an overlay in connection with realized returns. Realized returns are directly connected with momentum obviously
So yeah totally get that side of the equation but the second part, which is we are all looking at the same data with similar models with varying levels of sophistication so why does that signaling mean less. In addition to that why with everything being positive is there such a net short position? Like are there factors that force them to be net short (i.e. a LS book) or are the positioned net short because they don't believe in the current macro environment. Either way it's in contrast to what we're seeing in a macro backdrop