Global hedge funds experienced only modest gains from the significant rally in US stocks triggered by a US-China trade agreement on tariffs, according to a report by Reuters citing a client note from Morgan Stanley on Tuesday.
Hedge funds saw an average rise of 0.60% on Monday, underperforming the S&P 500, which surged 3.23% to close at its highest level since 26 March.
Morgan Stanley highlighted that global hedge funds are now less invested in US equities compared to previous years, as funds have shifted towards other regions following the onset of the trade war under President Trump. The uncertainty surrounding Trump’s unpredictable tariff policies has made hedge funds more cautious, with many increasing their short positions in recent months.
The bank noted that hedge funds were at their most bearish in five years last week, and had to cover these short positions during Monday’s rally.
Despite the surge in technology and artificial intelligence stocks, hedge funds saw limited benefits due to their reduced exposure to these sectors, Morgan Stanley said.
For the year-to-date through 12 May, global hedge funds have gained an average of 2.12%, while the S&P 500 is down 0.69%.
