(Bloomberg) -- Hedge funds spent last week selling their winners at the fastest pace since the meme stock craze in January 2021 as the world’s largest technology companies got hammered.
The cohort “aggressively unwound risk across their long and short books” for the week ending July 19, according to Goldman Sachs Group Inc.’s prime brokerage desk. The move, which came as the S&P 500 Index posted its worst weekly decline since April, is a continuation of a trend since May of funds unloading shares to have more cash ahead of the US presidential election.
“Overall, the week was filled with painful unwinds and violent moves lower in semis, mega caps, AI momentum winners,” Goldman’s US shares sales trading team wrote in a note. “Wednesday felt like peak de-risking and fundamental long-short hedge funds pain. Most of the supply we saw was from generalists reducing exposure in year-to-date artificial intelligence winners.”
The funds’ long-short net leverage, which is often viewed as a barometer of risk appetite, fell to 49.8% last week — the lowest level since March 2023, according to Goldman’s prime brokerage desk. At a single stock level, the biggest unwinds came across information technology, health care, financials and energy.
Last week, tech giants fell after a massive cybersecurity software failure grounded flights and disrupted corporations around the world. On Friday, the Cboe Volatility Index — or so-called VIX which measures the 30-day implied volatility of the S&P 500 — hit its highest level since late April. Investors also extended their rotation into small caps as bets on interest-rate cuts increase.
©2024 Bloomberg L.P.
