Global hedge funds have been selling and shorting shares across banks, insurers, fintech firms, and trading companies, making financials the most heavily sold sector this year, according to a report by Reuters citing a client note from Goldman Sachs.
Hedge funds “aggressively shorted” financial stocks in the week ending 13 March, reflecting concerns about the broader economic impact of the ongoing Middle East conflict and potential exposure of financial institutions to private credit markets.
The S&P financials index has dropped over 11% this year, while Europe’s banking index is down roughly 8%. Hedge fund managers are reportedly using financial stocks as liquid proxies to hedge against credit risks elsewhere in the system, rather than taking a direct view on individual banks.
Bruno Schneller, managing director at Erlen Capital Management, noted that when major institutions like JPMorgan Chase mark down loans to private credit funds, it can signal broader market risks, prompting hedge funds to protect portfolios through short positions in financial shares.
Goldman’s report highlights that all financial sub-sectors, except regional banks, have been net sold this year, with capital markets, financial services, and consumer finance leading the outflows.
