Despite facing the largest US stock market selloff in over a decade last week, hedge funds largely maintained their positions in technology stocks, according to a report by MarketWatch citing research by the prime brokerage desk at Goldman Sachs.
Both the Nasdaq 100 and S&P 500 indices experienced their worst single-day losses in years as investors exited US tech companies due to concerns about the profitability of investments in artificial intelligence.
However, Goldman Sachs’s analysts, led by Vincent Lim, noted that the majority of the selling was driven by long-only funds reducing their positions. In contrast, long-short hedge funds remained relatively stable during the selloff.
“The US market selloff appears to be driven by significant length reduction by the long-only community and less about further de-grossing by hedge funds (following large risk unwinds seen last week),” the Goldman analysts wrote.
Hedge funds had already reduced their exposure to the tech sector, selling more technology, media and telecom stocks in June than in any other month since 2016. Despite this, the recent selloff saw a different trend.
Goldman Sachs’s analysis revealed that the recent market drawdown was primarily due to a widespread selloff of macro products, including index funds and exchange-traded funds, driven almost entirely by short sales. In contrast, single stocks were moderately net bought during the Wednesday selloff. Investors showed interest in energy, financials, and consumer discretionary companies, which helped offset selloffs in the industrials, staples, and utilities sectors.
Despite being the worst-performing sector during Wednesday’s selloff, the information technology sector was only marginally net sold. This suggests that hedge funds remained relatively calm and retained their positions at the individual stock level.
