Hedge fund managers turned bullish on US equities in July, according to BarclayHedge and TrimTabs Investment Research, with the 43 per cent of managers positive on the S&P 500, the largest share since December 2010, from 27 per cent in June.

Bearish sentiment fell to 27 per cent, the smallest share since January 2011, from 38 per cent. (Ironically, the results were published in a month when controversy about the US debt ceiling came to a head).

“This reversal is striking,” said Sol Waksman, founder and president of BarclayHedge.  “Hedge fund managers were meaningfully bullish on domestic stocks in only one month in the first half of the year. Our research shows that hedge fund sentiment is a decent leading indicator, so the shift could help support stock prices in the near term,” Waksman said.

Managers remain very sour on long-dated Treasuries, the survey found. Bearish sentiment on the 10-year note edged lower to 42 per cent in July from 44 per cent in June. Bullish sentiment sank to 12 per cent, the smallest share in more than seven months, from 18 per cent.  Meanwhile, managers remain modestly bullish on the US Dollar Index. Additionally, 16 per cent aim to leverage up in the near term, while 11 per cent plan to deleverage.

About 68 per cent of hedge fund managers describe the valuation on the S&P 500 as fair or cheap, while 32 per cent feel it is overpriced.  Meanwhile, when asked to choose the most overbought item from a list that included oil, gold, US equities, US Treasuries, and Europe equities, 36 per cent of managers picked gold.  Only 4 per cent chose European equities.

The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis.