Hedge funds offloaded European equities at the fastest pace in a decade during March and April, driven by escalating trade tensions and a strengthening euro, according to a a report by Reuters citing a recent note from Goldman Sachs.
The exodus marks the largest two-month net selling of European stocks by hedge funds in 10 years, with managers reacting sharply to the dual threat of US tariffs proposed by President Donald Trump and currency strength that could weigh heavily on Europe’s export-heavy corporate sector. The euro’s appreciation has further intensified concerns for companies within the STOXX 600 index, nearly 60% of whose revenues come from overseas, including a significant exposure to the US.
Goldman’s analysis shows hedge funds were net sellers on two-thirds of trading days in March and April, abandoning long positions and ramping up short bets across sectors most vulnerable to trade shocks—particularly autos and luxury goods. Underwhelming earnings from major luxury names catalised an acceleration in sector-specific selling.
In response to broader market uncertainty, hedge funds also built out defensive index hedges, which reached their highest level since 2019 during early April. However, many of these trades were unwound following the Trump administration’s decision on April 9 to pause tariffs for 90 days, temporarily easing investor anxiety.
Despite the brief reprieve, speculative flows remained cautious. Hedge funds eased short bets on European pharmaceutical stocks mid-month, but reloaded those positions in the final weeks of April, suggesting ongoing scepticism around earnings resilience and macro exposure.
One exception to the bearish tilt was the European defence sector, where hedge funds grew both long and short exposure, but finished the month with four times more long than short positions. Firms in Germany – particularly steel and defence-related companies – stood out, with hedge funds maintaining a net long bias there, in contrast to net short positions in nearly every other European country.
