Hedge funds have positioned their strategies for Trump 2.0 by ramping up their market positions with the highest levels of borrowing seen since 2010 and bets on the continuing rise of the dollar, according to a report by Reuters.
The report cites a note from Morgan Stanley’s prime brokerage division as highlighting that US equity-focused hedge funds entered the week with gross leverage levels — an indicator of market exposure — at their highest range in over a decade. European hedge funds, meanwhile, are similarly optimistic, betting on gains in financial, technology, and energy sectors, the note said.
According to an investment letter from Lancaster Investment Management though, Trump’s focus on protectionist measures, including tariffs and deregulation, is a double-edged sword. While certain US stocks might benefit from tax cuts and deregulation, broader market volatility and trade-related risks could hinder gains.
“This will occur as the US fiscal deficit exceeds 6%, with the economy operating at full employment,” the letter stated.
A note from Goldman Sachs, meanwhile, highlights that hedge funds are scaling back on emerging markets outside China, with net selling reaching the highest level seen since October, while according to a JPMorgan note, macro-focused funds and systematic trend followers are maintaining strong bets on the US dollar.
Commodity trading adviser (CTA) funds, which trade futures and derivatives, have similarly stretched their long-dollar positions, especially against the euro, according to Barclays.
