Hedge Funds Pulling Most of Their Money Out of Market at the End of Each Day

In October, the Washington Post wrote:

The largest swings have often occurred during the last hour of trading, prompting a closer look by the Financial Industry Regulatory Authority, a nongovernmental regulator of securities firms. The end of the trading day is when institutional investors, including hedge funds and mutual funds, rush to meet client demands to pull cash out of the market, analysts said.

Today, trader Tyler Durden wrote about a tip he received from a trusted source: the average equity hedge fund is 70% in cash at the end of each trading day. Durden comments:

Explains why the market performs like a schizophrenic day trader, as investors try to game the greater fool in unison, running the market up and down especially in market leading sectors such as financials. As long as a fund is not the last man in, the first 50% in any wave are set to make profits. While this has long been the modus operandi for … notable algo trading outfits …, the fact that it is spreading to most hedgies is shocking ….

Durden told me by email that “most portfolio managers are well aware of ths fact, and the ETF explosion especially in 2x and 3x level is all a direct function.”

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