Hedge Funds Betting Demise in Small-Cap Stocks Will Get Worse

  • Short positions in Russell 2000 futures at highest since 2009
  • It’s a divergence from growing bullish wagers on S&P 500

It’s been a lousy year for U.S. small-cap stocks. Hedge funds think it’ll stay that way.

Large speculators turned more bearish on smaller companies in eight of the last nine weeks, with net short positions in Russell 2000 index mini futures reaching levels not seen since November 2009, data from the Commodity Futures Trading Commission show. Meanwhile, bullish holdings of S&P 500 futures rose to the highest since April.

The sentiment split came as small-cap shares careen toward the worst year since 1998 relative to the market. Since the end of December, the Russell 2000 is basically flat, compared with an 8 percent advance in the S&P 500 Index.

A reliance on domestic demand may have contributed to the demise of smaller companies. As the U.S. economy remains stagnant and President Donald Trump’s pro-growth agenda remains elusive, investors are shifting focus to multinational firms that are poised to benefit from economic acceleration from overseas.

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