Goldman Sachs' index of popular hedge-fund positions has lost 10.4% so far in October, after a 4.2% drop on Thursday. Goldman's note says U.S. hedge funds are shorting U.S. stocks at close to five-year highs.
Goldman's prime brokerage estimated that systematic or trend-following funds lost 1.2% on Thursday, fundamental strategies declined 1.1% and multi-strategy funds slumped 1.4%. Faltering confidence in the sustainability of the artificial-intelligence boom and chaos in the French bond market have wrong-footed the hedge fund community this month.
First three-category loss above 1% since 2020
It was the first time since the onset of the pandemic in 2020 that all three hedge-fund categories posted declines greater than 1% on the same day. Goldman trader Matthew Kaplan made the observation in a daily email to clients.
Goldman also keeps a proprietary index that tracks the stocks most popular with hedge funds against the most-shorted names. That index dropped 4.2% on Thursday, usually an indication of rapid de-leveraging or trade liquidations, and the move was the worst since 2011.
Stocks and bond yields move together
Kaplan noted that the correlation between the Nasdaq and U.S. Treasury note yields is high at present, as uncertainty about AI stocks forces capital into the relative safety of bonds. Rich Privorotsky, head of Goldman's One Delta product, pointed to the irony that spiking bond yields prompted the equity weakness, and that problems in stocks are now fueling demand for bonds.
Against that backdrop, Goldman's note says U.S. hedge funds are shorting U.S. stocks at close to five-year highs.
Kaplan also described how the funds behaved on Thursday. According to Goldman's Kaplan, who described Thursday's positioning: "Zero signs of offense being played around the AI theme on our pad yesterday." He said last week's episode brought rotational flows out of AI and into defensive pockets of the market, but very little of that appeared on Thursday despite moves higher in consumer, utilities and pockets of financials.
Source: MarketWatch
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