Global Hedge Funds Retreat from Tech and Consumer Stocks Amid Market Downturn

At the beginning of the year, global hedge funds have been actively selling off their technology shares for the third consecutive week, aligning their strategies with the recent drops in the S&P 500 index. Large tech stocks, in particular, have seen decreased exposure from fund managers.

Goldman Sachs reported to its clients that during the week leading up to January 6, hedge funds divested from US tech stocks more than any other sector, marking the most significant sell-off in these stocks within an 11-week period. According to the data, there was not only a reduction in long positions, but also an increase in short positions, indicating a broad expectation that tech stock prices would continue to fall.

Technology shares across various subsectors—from software firms to semiconductors, from tech hardware to storage companies—were let go, excluding only communications devices. This sell-off correlated with a notable decline in European tech stocks, which experienced their largest weekly percentage slide since the previous July. This downward shift in the market was reflected in the performance of funds specializing in stock picks, which saw a drop of 1.07% during the last week of December and the first days of January.

The performance woes for hedge funds were further emphasized by a report from Morgan Stanley, which indicated that tech and media-related stocks' decline particularly impacted funds. The composite performance of hedge funds that actively trade in long and short stock positions realized a 1.2% loss in the same period. Since these funds did not hold many short positions at the beginning of the week, their losses on bullish positions were not sufficiently offset.

While the downward trend impacted the technology sector heavily, it wasn't the only area of retreat for hedge funds. The consumer discretionary sector, which includes companies producing non-essential goods and services, also saw a significant withdrawal of investments. This sector experienced its most rapid exit since September 2023, as noted by Goldman Sachs. Particularly, global positions in industries like hotels, restaurants, retail stores, and auto companies were sold off.

Hedge funds that had already positioned themselves short in the consumer discretionary sector, however, experienced a performance boost of 3.5%, demonstrating the importance of strategic positioning in volatile markets.

HedgeFunds, Technology, Markets