Hedge funds offloaded their perviously winning stock positions at the fastest rate since the meme stock frenzy of January 2021 last week, as major technology companies saw significant declines, according to a report by Bloomberg.
The report cites data from the prime brokerage desk at Goldman Sachs as showing that hedge funds “aggressively unwound risk across their long and short books” for the week ending 19 July. This activity coincided with the S&P 500 Index experiencing its steepest weekly decline since April.
In a client note, Goldman’s US Shares Trading team wrote: “The week was marked by painful unwinds and sharp declines in semiconductors, mega caps, and AI momentum stocks. Wednesday felt like the peak of de-risking and significant pain for fundamental long-short hedge funds. Most of the supply came from generalists reducing their exposure in year-to-date artificial intelligence winners.”
According to Goldman’s prime brokerage desk, the funds’ long-short net leverage, often seen as an indicator of risk appetite, dropped to 49.8% last week, the lowest level since March 2023. The biggest sell-offs occurred in information technology, healthcare, financials, and energy sectors.
The tech sector’s troubles last week were exacerbated by a massive cybersecurity software failure that grounded flights and disrupted corporations globally. On Friday, the Cboe Volatility Index, which measures the 30-day implied volatility of the S&P 500, reached its highest level since late April. Additionally, investors increased their rotation into small caps amid rising expectations of interest-rate cuts.
