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Hedge funds pivot from US to European stocks

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Amid an ongoing debate over the cost of US equities, global hedge funds have been upping their exposure to European stocks while reducing portfolio holdings in North American companies, according to a report by Reuters.

The report cites data from Morgan Stanley’s prime brokerage division as revealing that hedge funds have bought EU equities in nearly 70% of the trading sessions since the Euro STOXX 600 began its rally in mid-January. Following the acquisitions, hedge funds portfolio exposure to Europe has grown from below 17% at the end of 2023 to roughly 19%.

The Euro STOXX 600 is up 6.5% this year, behind the S&P 500’s 9.6% YTD gain, although the S&P 500 trades at 21 times forward earnings estimates, compared with 14 times for the STOXX 600.

According to Morgan Stanley, investors are mostly adding long positions in Europe, with information technology services, industrial conglomerates, semi-conductors, electrical equipment and life science tools and services, the most popular sectors.

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