Hedge funds have ramped up their bearish positions, selling more stocks than they bought by the largest margin in a year, according to a report Reuters citing data from Goldman Sachs covering the period from 21-27 February.
The report highlights that hedge funds reduced their exposure across nearly all geographic regions, with the most significant selling activity concentrated in North America and parts of Asia. Almost every sector saw net selling, with the notable exception of communications services.
In the healthcare sector, hedge funds aggressively increased short positions, marking one of the highest levels of net selling in the past five years. This shift comes after six consecutive weeks of net buying in healthcare stocks, indicating a sharp reversal in sentiment.
Hedge funds also boosted short positions in US-listed exchange-traded funds (ETFs), particularly those tracking large- and small-cap equities, with short bets on ETFs rising 5.4% last week among Goldman Sachs’ clients, underscoring a broader shift toward defensive positioning.
The selling pressure coincided with a global market downturn, as MSCI’s broad equity index declined roughly 3% during the period. The pullback was driven by escalating trade tensions and disappointment over Nvidia’s latest earnings report, which failed to sustain the momentum behind Wall Street’s AI-driven rally.
Goldman Sachs noted that the pace of risk-taking has slowed, with portfolio managers rotating out of US equities and into Asian stocks in early 2024. This shift aligns with a broader de-risking trend as funds recalibrate their exposure amid macroeconomic uncertainty.
Notably, hedge fund exposure to the Magnificent Seven US tech stocks — has now fallen to its lowest level since April 2023, suggesting that funds may be in the final phase of their de-risking cycle, potentially positioning for further market corrections.
