Following Donald Trump’s US presidential election win, hedge funds have quickly pivoted toward financial stocks while reducing their exposure to companies in the renewable energy sector, according to a report by Reuters.
The report cites a recent Goldman Sachs release as highlighting that hedge funds bought bank stocks at the fastest rate in three years, signalling strong confidence in the sector under the anticipated regulatory and tax policies of the new administration.
Banking and financial services emerged as the most purchased sector on Goldman’s prime brokerage trading desk last week. While the release did not specify which regions were most popular, a second note from Goldman Sachs indicated that US banks stand to benefit directly from a more favourable regulatory environment expected under Trump’s leadership.
The report also pointed out that tax reform is likely to benefit the financial sector, with room for hedge fund investments in US financial stocks to increase, given that current positioning is relatively low compared to historical levels.
On 6 November, the day following Trump’s victory, the US bank sector index surged by up to 11.1%. Prime brokerage desks saw an uptick in long stock positions on banks, consumer finance, capital markets, and other financial services. Bullish bets were primarily concentrated in US stocks, but hedge funds also took long positions in Asian emerging markets and shifted from short to long in European equities.
The Goldman Sachs report also showed a sharp shift away from utilities and renewable energy. Hedge funds engaged in heavy short selling against utilities, with independent power producers and renewable energy companies becoming the most offloaded assets. In the US utilities sector, short positions outnumbered long ones by a two-to-one margin.
