August 4, 2009 / 6:44 PM / 10 years ago

Dow rally for real? "Big money" thinks so: study

NEW YORK (Reuters) - Pension managers and mutual fund houses have been among the biggest buyers of the Dow Jones industrial average .DJI in recent weeks, underscoring the growing belief the recession is over, according to an analysis conducted by Thomson Reuters.

Traders work on the floor of the New York Stock Exchange, August 3, 2009. REUTERS/Brendan McDermid

Between July 14 and July 21, when the Dow gained almost 600 points to 8915, net buying by pension managers and mutual fund managers — or so-called “long-term” or “big” money managers — totaled $1.9 billion, said Jeff Shacket, vice president of corporate services at Thomson Reuters, who analyzed settlement records of the Dow components.

The following week, when the Dow approached 9000, pensions and mutual funds were net sellers but only at $578 million, while hedge funds were net buyers of $19 million in Dow stocks but not after selling $166 million the previous week, the settlement records showed.

“There is some momentum lost among pensions and mutual fund investors, but the move is still generally positive,” Shacket said on Tuesday. “These buyers are saying that this market is going to go higher — and not lower any time soon.”

The move by these institutional investors into Dow stocks corroborates with economic data and earnings that have been better than expected.

Tuesday, in fact, the number of contracts to buy previously owned homes in the United States rose in June for a fifth straight month while a report last week showed sales of new homes soared 11 percent in June, the most since 2000. For their part, the 370 Standard & Poor's 500 index companies .SPX that have reported second-quarter earnings are surpassing estimates by 14.9 percent, according to Thomson Reuters.

Shacket said the settlement records reveal to some degree how “there is some confidence on the part of long-term investors that we won’t have a bad second half.”

So far, the second half has been anything but: The Dow posted returns of over 7 percent in July alone and on the first trading day of August investors saw the Standard & Poor’s topped 1000 and the Nasdaq passed 2000.

Hedge funds, which have appeared to miss the huge rally in recent weeks, also are becoming less bearish.

The Greenwich Alternative Investments Macro Sentiment Indicator — which is based on hedge fund investors employing a macro view who collectively manage a total of $30 billion in assets — showed that 50 percent of those macro managers expect the S&P to continue to move lower.

That’s down from 60 percent in July.

“All of this suggests how investors overreacted to the downside during the first quarter,” Shacket said.

Reporting by Jennifer Ablan; Editing by Andrea Ricci

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