After Eight-Week Sell-Off, Hedge Funds Are Buying U.S. Stocks At Their Fastest Pace Since 2021
After eight weeks of selling, U.S. hedge funds are buying stocks at the fastest pace since 2021.
On Monday, analysts stated that recently, both U.S. hedge funds and the overall stock market have seen a significant increase in trading volume. The U.S. stock market is experiencing active buying and market rallies, but the high market valuation is a worrying issue that may trigger future adjustments.
According to data from Goldman Sachs Prime Brokerage, the net purchase of individual stocks by hedge funds is the largest since December 2021, with 7 out of 11 sectors being net bought this week. In terms of nominal amounts, the healthcare, financial, industrial, and information technology sectors are leading. Fund managers have net bought U.S. healthcare stocks for the third consecutive week, at the fastest pace in over a year.
For most of the second half of this year, especially since the collapse of arbitrage trading in August, U.S. stocks seem to have continued to rise despite numerous concerns — last Friday, the S&P 500 index reached a record high for the 45th time this year, the best performance of the 21st century.
U.S. Stock Market Trading Volume Soars
According to data from Goldman Sachs Prime Brokerage, after eight consecutive weeks of selling, the pace at which hedge funds net buy U.S. stocks has set the fastest record in four months, mainly driven by individual stocks. The net purchase volume of individual stocks has reached the highest level since December 2021, with the ratio of long buying to short covering being 1.2 to 1.
However, amidst this frenzy of buying, the overall investment level of hedge funds remains relatively low. The total leverage ratio of U.S. fundamental long-short funds only increased by 0.2 percentage points to 192.4%; the net leverage ratio increased by 1.3 percentage points, only 53.5%; and the long-short ratio increased by 1.5 percentage points, reaching 1.777.
Looking again at the data from Goldman Sachs' equity sales and trading department, the buying volume is even more apparent. Goldman Sachs trader Matt Kaplan pointed out that, thanks to the mild PPI data offsetting the rise in CPI, the market rose broadly last week when the S&P 500 index reached a new high. The performance of the S&P 500 equal-weight index was about 40 basis points better than the weighted index, and the Russell index rose by 2%.
Hedge Funds' Net Purchase of U.S. Stocks Sets the Fastest Record in Four Months
According to Statistics from Goldman Sachs Prime Brokerage on the U.S. stock market, last week, macro products such as indices and ETFs saw a small net sell-off, mainly driven by short sales. The short position of ETFs listed in the United States increased by 1.3%, mainly concentrated in large-cap stock and corporate bond ETFs.
The net purchase volume of individual stocks was the largest since December 2021, mainly driven by long buying and short covering. Seven out of eleven sectors were net bought this week, with healthcare, finance, industry, and information technology sectors leading in nominal amounts, while high dividend-yielding sectors such as real estate, utilities, and consumer staples were all net sold.
The information technology sector performed the best this week, with the net purchase volume also ranking at the top, mainly driven by long buying, with slightly less short covering. The software industry and technology hardware industry saw the most net buying, while the semiconductor and equipment industry saw the most net selling. Despite the recent increase in buying volume, the net position of U.S. software stocks remains low.
Fund managers net bought U.S. healthcare stocks for the third consecutive week, at the fastest pace in over a year, mainly driven by long buying and short covering.
All sub-industries were net bought this week, with biotechnology, pharmaceuticals, and healthcare providers and services leading. The total long-short ratio of pharmaceutical, biotechnology, and life science stocks is now 2.70, the highest level since May, although it is still in the 12th percentile in a five-year review.