Hedge funds concentrated on European equities faced their most significant monthly losses in over a year during October, primarily due to a broader market sell-off, according to a report by Reuters citing data from the Prime brokerage division at Goldman Sachs.
European stock pickers recorded a negative return of 2.6% last month, marking their largest decline since September 2023, as noted by Goldman Sachs.
The STOXX Europe 600 Index, which tracks the region’s stocks, dropped 3.6% in October amid the third-quarter earnings season. While banks, pharmaceuticals, and biotech firms reported positive earnings, this was counterbalanced by disappointing performances in the industrial and energy sectors.
Goldman Sachs highlighted a widespread sell-off of European stocks, with global investors favouring US equities in anticipation of the upcoming presidential elections.
As a result of falling stock prices, year-to-date returns for European traders decreased to 5%, which is less than half of the 11.5% returns enjoyed by their US counterparts.
Goldman Sachs identified utilities — particularly gas, electric, and water companies — as the primary contributors to the losses. Conversely, some hedge funds profited from industrial stocks and short positions, which benefit from declines in share prices.
The sectors experiencing the most significant net selling included hardware technology, specifically semiconductor and semiconductor equipment companies, along with the aerospace and defence industries.
In contrast, financial stocks, primarily banks, emerged as the most net-bought sector for the second consecutive month. Hedge funds shifted strategies by reducing short positions and increasing long positions, which anticipate price increases.
The report also indicated that European-focused fundamental stock pickers “substantially” reduced gross leverage in October, leading to net leverage hitting its lowest level of the year.
