Hedge funds offloaded financial stocks for the second consecutive week last week while aggressively rotating into consumer staples, marking the largest sector pivot in nearly two years, according to a report by Reuters citing s note from Goldman Sachs’ prime brokerage unit.
The shift comes just ahead of a crucial macro and earnings week, with major US banks set to report Q2 results and June’s inflation data due on Tuesday – both of which could challenge the current bullish market sentiment.
Goldman’s data shows hedge funds cut long positions and added shorts in both US and European financials, signalling growing caution around the sector amid macro uncertainty. In contrast, consumer staples—traditionally a defensive play—became the most net-bought sector in July.
The buying spree in staples, which includes essentials like food, beverages, and household goods, reflects a broader "risk-off rotation" as traders brace for the potential fallout from tariff hikes and soft economic prints, according to analysts.
While systematic equity hedge funds are down 1.8% month-to-date, they remain up over 10% for the year. Stock-pickers, meanwhile, are flat in July but have generated 6.6% YTD returns, suggesting that selective positioning – such as the tilt toward staples – is gaining traction amid market volatility.
Goldman also noted increased hedge fund activity in trading and consumer finance stocks, even as broader financials saw outflows.
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