Hedge funds turn bearish in April, Goldman says

By Thomson Reuters Apr 19, 2024 | 11:02 AM

By Nell Mackenzie

LONDON (Reuters) – Hedge funds globally have turned the most bearish they’ve been on equities this year, a Goldman Sachs note said, as sticky inflation and renewed geopolitical concern have dragged stock markets lower.

They ditched long positions and added short ones across all regions led by North America, Europe, and to a lesser extent developing Asia, said the note sent to investors on Thursday and seen by Reuters on Friday.

A short or bearish position bets that an asset will decline in value, while a long position anticipates a price increase.

After ending each of the last three months with a net bought position, hedge funds held a net sold position by mid-April “as managers slowed the pace of long buying while ramping up short selling activity (especially in macro products),” the note said.

The U.S. S&P 500 stock index is down roughly 4% so far in April, Europe and China indices have fallen about 2% each.

The amount of net leverage used by stock picking hedge funds to borrow for trades declined 1.9% this month so far, suggesting “a more guarded posture and reduced risk appetite by hedge funds,” the note added, citing data to April 16.

“We are seeing significant interest in market neutral and long short equity managers due to investor concerns relative to high U.S. equity valuations, stubbornly high inflation, and geo-political risks,” said Don Steinbrugge, founder and chief executive of Agecroft Partners, a hedge fund consulting firm.

Consumer discretionary stocks, where companies produce nice-to-haves such as luxury goods, appliances and automobiles, drew the most shortsellers, the note said.

Hedge funds also continued to short energy companies even as increased tensions in the Middle East have lifted energy prices and generally boosted energy stocks.

Traders added long positions in consumer staples such as food and beverage companies and also piled into health care stocks, the Goldman note also showed.

Hedge funds kept buy positions in semiconductor and related equipment stocks which remained at multi-year highs.

Allocations to software dropped to three-year lows as many hedge funds have begun to short the sector, the Goldman note added.

(Reporting by Nell Mackenzie, additional reporting by Carolina Mandl; editing by Dhara Ranasinghe and Andrew Heavens)