Hedge funds have scaled back risk exposure and reallocated capital in anticipation of US President Donald Trump’s expected tariff announcement on 2 April, according to a report by Reuters citing data from the prime brokerage division at Goldman Sachs.
The move underscores growing concerns that new trade policies could fuel a global economic slowdown and disrupt equity markets.
Hedge funds have cut net exposure across all regions, with the largest reductions in European and emerging markets. Trading volumes have trended lower, except for the March 21 options expiry, which saw an expected spike in activity.
Funds have increased short positions in emerging market equities, particularly in Latin America and Asia. According to Goldman’s data, hedge funds have been net sellers of Asian equities throughout March, signalling a cautious stance amid trade war uncertainties.
Positions in cyclical stocks – such as auto-parts manufacturers, jewellery brands, and home furnishing retailers – have been reduced as fears of a US recession escalate. Hedge funds are reallocating capital toward less economically sensitive sectors to hedge against downside risks.
After building long positions in European auto stocks earlier this year, hedge funds have swiftly reversed course, turning net sellers after Trump unveiled a 25% tariff on imported cars and light trucks starting 3 April, with additional duties on auto parts beginning 3 May. Short bets against the sector are now near historic highs, per Goldman’s data.
In contrast, hedge funds have been aggressively buying stocks sensitive to metal prices, with positions hitting multi-year highs. This suggests that funds anticipate rising commodity prices amid trade disruptions and potential supply chain constraints.
