Goldman says hedge fund growth was not fast enough to dump stocks

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(Bloomberg) – While hedge funds rushed to dump U.S. growth stocks, including technology, in the first quarter amid expectations of higher rates, they failed to bounce back from the worst start of the year on record, according to Goldman Sachs Group Inc. Strategist

Strategists led by Ben Snyder wrote in a note on Friday, “A falling equity market and even worse performance in the most popular long positions have led the hedge fund to return to the worst start in a year on record.” “As a result of this struggle, hedge funds in recent months have accelerated leverage declines and revolutions from growth stocks that began several quarters earlier.”

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Yet, despite adding energy stocks to the most popular long positions, the technology represents more than a third of Goldman’s hedge fund VIP list, they said, based on holdings of 799 hedge funds in the second quarter at the start of the $ 2.4 trillion gross equity position. The average equity hedge has returned 9% of losses so far this year, according to Goldman, citing HFR data.

Technology stocks, which fueled the post-epidemic rally in key Wall Street indices, have been hit by a sell-off this year as the Federal Reserve announces financial austerity. High interest rates mean a big discount for the current price of future profits, damaging growth stocks with the highest valuation including technology and raising shares of cheap or so-called value.

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“Although recent weeks have been marked by sharp selling pressure, higher levels of equity exposure in several investment groups indicate further selling risk if macro outlook does not improve,” Snyder wrote in a note.

With big tech technology and considerations, hedge funds have significantly reduced their position, increasingly funded by Apple Inc., Amazon.com Inc. And Tesla Inc. Moving away from, according to the note. Facebook is owned by Meta Platforms Inc., Apple, Amazon, Microsoft Corp. And Google-parent Alphabet Inc. – Commonly referred to as the FAAMG Group of Stocks – The most popular hedge fund retains features in long positions, Microsoft’s most popular long, Goldman strategist Dr.

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More broadly, strategists see that the rotation of the hedge fund’s position reflects a larger redistribution across the market, with investors moving from TINA (no alternative) to TARA (There Are Reasonable Alternatives) to the stock.

“Today, by contrast, positive real interest rates, rising recession fears, and falling equity prices have signaled to investors that there are reasonable options for stocks,” Goldman strategists said, moving away from equities and towards family and institutional flows. Indicates especially shares.

“For hedge funds, this has exacerbated the vicious cycle of share price declines, leverage declines and weak liquidity that has created such a challenging market environment this year.”

© 2022 Bloomberg LP

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