Hedge funds ramp up bets on falling stocks

Global hedge funds sold more stocks than they bought by the largest amount in a year, mainly driven by their bets that stocks will drop, a Goldman Sachs note showed on Friday.

The note refers to the period of February 21-27.

Goldman Sachs said the gloomy sentiment was spread across all geographic regions, but mainly in North America and part of Asia, and was seen in almost all company sectors, except for communications services.

In healthcare, net selling by hedge funds was entirely driven by short positions and ranked close to the highest level seen over the past five years.

Hedge funds turned more pessimistic about healthcare after buying stocks in the sector on a net basis for six straight weeks.

Bets that U.S.-listed exchange-traded funds will fall, including those focused on large and small caps, rose 5.4% last week among Goldman Sachs' clients.

Stocks fell over the period, with MSCI's (.MIWD00000PUS),  gauge of stocks across the globe down roughly 3%, amid concerns about an escalating trade war and a report by chipmaker Nvidia (NVDA.O),  that failed to rekindle Wall Street's AI rally.

"The pace of risk taking has slowed versus the past several months," Goldman said in a separate note about hedge funds' positioning, adding portfolio managers have been rotating out of U.S. equities and into Asian stocks this year.

Exposure to the Magnificent Seven group of U.S. tech and growth stocks is now at the lowest level since April 2023, indicating hedge funds' de-risking episode could be in the final stage.