Investing.com -- U.S. hedge funds have been buying equities for four consecutive weeks, with the last week’s long buying in dollar terms being the largest since November, according to Goldman Sachs (NYSE:GS)’ prime brokerage desk.
Vincent Lin of Goldman Sachs has noted that this trend indicates a heightened willingness by hedge funds to assume idiosyncratic risk.
In terms of sectors, 10 out of 11 U.S. sectors witnessed net buying, with the information technology sector leading the pack. This sector witnessed the most significant long buying in over a decade.
Fund managers purchased nearly every subsector within tech, with semiconductors and semiconductor equipment leading the way. However, software experienced a modest net selling last week.
Last week, hedge funds adjusted their positions by decreasing their holdings in the Magnificent 7 tech stocks while increasing their exposure to China ADRs in the first quarter.
Despite the escalating trade tensions at the end of the quarter, hedge funds increased their exposure to China ADRs. The most popular China ADRs among U.S. hedge funds include Alibaba Group (NYSE:BABA), PDD Holdings (NASDAQ:PDD), Baidu (NASDAQ:BIDU), and JD.com (NASDAQ:JD).
However, this shift in investment strategy did not yield the expected results as the Magnificent 7 stocks returned a positive 12% during the second quarter to date, while trade tensions negatively impacted China ADRs. Despite this, U.S. megacap companies continue to be among the most popular long positions for hedge funds.
Ben Snider, leading the team at Goldman Sachs, noted that despite a volatile macroeconomic backdrop, U.S. equity long/short hedge funds have managed to maintain a positive return of 1% year-to-date, thanks to strong stock-picking. He also mentioned that the rising short interest has pushed hedge fund gross leverage to a record high.
For the first time since the 2021 short squeeze, short interest in the median S&P 500 stock has risen above the long-term historical average, increasing to 2.3% of float from 1.8% in December 2024.
In terms of sectors, hedge funds reduced their net exposure to healthcare and increased their holdings in infotech, consumer discretionary, and industrials.