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Rocky markets make hedge funds 'do the splits'

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Frustrated with these erratic markets? You aren't alone. New data shows that even supposedly sophisticated hedge funds are scratching their heads.

Consider their aggregate positions in commodities. July numbers from the Commodity Futures Trading Commission show hedge funds are doing "the splits" -- a term suggested by Societe Generale, which compiled the data -- because they are positive on things like oil and natural gas, but negative on copper, which is typically a barometer of the entire economy.

Adding another wrinkle, hedge funds are also net long gold at the same time they are bullish on crude and natural gas -- a rather contradictory position.

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As for agricultural commodities, hedge fund activity shot through the roof. In July, they established record net long positions in things like soybeans and wheat on the back of a severe drought that arose from scorching weather conditions.

Then there's the VIX. Even though the volatility index is currently sitting at only 16 per cent, hedge funds sold it at record levels last month to limit their exposure to erratic price moves during the less liquid summer.

Add all of that up and you get quite the complex trading environment. But these figures are just a taste of what global investors must deal with every single day, proving that it really isn't easy to make money right now.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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