Global hedge funds are regaining their appetite for US equities, cautiously adding exposure after a significant selloff in Wall Street’s major indexes, according to a report by Reuters citing a client note from Goldman Sachs.
According to Goldman Sachs, hedge funds resumed buying US stocks last week after unwinding positions on 7 March and 10 March. The firm noted that while managers took both long and short positions, overall bearish sentiment grew, with short bets increasing relative to long exposure. JPMorgan reported similar findings, underscoring a growing divergence in market positioning.
By contrast, hedge funds have been aggressively cutting risk in Europe and Asia. Goldman Sachs noted that European equities experienced their fastest pace of net selling in more than five years, while emerging markets in Asia also saw continued outflows. The scale of deleveraging last Friday and Monday represented the largest two-day reduction in positions in four years, resembling market reactions seen in the early days of the Covid pandemic, Reuters previously reported.
Despite last week’s losses across all major US indexes, Friday’s session saw a rebound, with the S&P 500 rising 2.18%, the Dow Jones Industrial Average gaining 1.74%, and the Nasdaq climbing 2.68%. The hedge fund sector’s sudden return to US equities reflects a mix of strategies — some investors are seeking bargains, while others are adding short positions to capitalise on further declines.
Trend-following hedge funds, or CTAs, remain net short on US equities, according to JPMorgan. However, Barclays indicated on Friday that signs of capitulation could lead to “buy the dip” opportunities, though ongoing uncertainty around US trade policies may temper this trend.
Charles Lemonides, founder of long/short equity hedge fund ValueWorks, has increased his long exposure in US stocks amid the selloff, viewing the 10% correction in the Nasdaq and S&P 500 as an opportunity. “The market has been going down on the assumption that it will continue declining. However, we haven’t yet seen a real economic slowdown or recession,” he noted.
The recent performance gap between US and European markets has also influenced fund positioning. While the STOXX 600 has gained 7.68% year-to-date, the S&P 500 remains down 4%, narrowing the valuation disparity between the two regions and making European equities less attractive.
