HFA Icon

Hedge Funds Covered Their Shorts En Masse Last Week, Accounting Nearly All Net Buying

Michelle headshot
Michelle deBoer-Jones
Published on
Updated on
Gross and Net Leverage
Sign up for our E-mail List and Get FREE Access to Exclusive Investment E-books and More!

The Goldman Sachs Equity Fundamental Long/ Short Performance Estimate ticked up 2.16% the week of April 18 through 24, underperforming the MSCI World Total Return Index’s gain of 3.56%. According to the firm, beta of 1.73% drove the majority of that estimated gain, with only 0.43% coming from alpha.

Read hedge fund letters here

Hedge Funds GS Equity Fundamental Long/Short Performance Estimate (Asset Weighted)

Leverage rises even more

According to Goldman’s report dated Friday, overall book gross leverage rose 0.5 points to 284% — despite the controversy over high hedge fund leverage. That level was at the 81st percentile over the last year. Meanwhile, net leverage rose 1.4 points to 70.2%, in the fifth percentile over the past year.

Gross and Net Leverage

Goldman Sachs reported that the overall book long/ short ratio was 1% to 1.657, in the sixth percentile over the last year. Fundamental long/ short gross leverage rose to 203.8%, the 100th percentile over the past year, while fundamental long/ short net leverage rose 1.5 points to 48.9%, in the seventh percentile.

Short covering accounts for most net buying

Following eight consecutive weeks of net selling, hedge funds net bought global equities for the second straight week last week, with short covers accounting for almost all of that buying. The short-to-long buying ratio was 9.8 to 1.

Every region except developed Asia was net bought that week, with North America and Europe leading the way. According to Goldman, global single stocks were net sold for the ninth consecutive week with long sales being the driver. Macro products were net bought for the third consecutive week, driven by both short covering and long buying.

Goldman reported that six of the 11 sectors were net sold the week of the 18th, led by industrials, health care and staples in notional terms.

Short and long sales drive staples selling

Highlighting consumer staples, the firm reported that both short and long sales drove the sector’s net selling last week. Europe led the way with net selling of consumer staples stocks, with both short and long sales. Almost all subsectors were net sold except for household and personal care products.

Prime Book: Global Staples (Positive Value = Buying)

According to Goldman, hedge funds have net sold consumer staples in seven of the last nine weeks. As a result, the Prime book is now underweight the sector by 4% versus the MSCI World Index, ranking in the ninth percentile over the past year and the 74th percentile over the last five. The global staples long/ short ratio now stands at 1.39, in the third percentile over the last year.

Hedge funds bought financials last week

Consumer discretionary, financials and real estate were the most net bought, led by financials in the U.S. In fact, financials is now the second-most net bought sector in the U.S. year to date. Long buys outpaced short sales in the financials sector by 6.8 to 1.

According to Goldman Sachs, hedge funds have net bought financials stocks in the U.S. in five of the last seven weeks. Financials gross exposure as a percent of the total U.S. book stands at 14.2%, or two-year highs, while net exposure stands at 13%, the highest level since May 2023.

Prime Book: Financials % of Total US Exposure

The U.S. financials long/ short ratio stands at 1.69, in the 50th percentile over the past year.

Michelle headshot

Michelle deBoer-Jones is editor-in-chief of Hedge Fund Alpha. She also writes comparative analyses of stocks for TipRanks and runs Providence Writing Services. Previously, she was a television news producer for eight years, producing the morning news programs for NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spending a short time at the CBS affiliate in Huntsville.