Hedge Funds Aggressively Sell Tech Stocks Amid Record Highs
Last week, tech stocks reaching new record highs daily, Goldman's prime brokerage noted significant net selling of tech stocks by hedge funds over the past month, particularly in the Semiconductor and Semiconductor Equipment sectors, with Nvidia reversing its year-to-date trend. June's net selling by hedge funds in US TMT is on track to be the highest on record according to Goldman Sachs Prime Brokerage
A few days later, this "smart money" selling extended beyond tech stocks to nearly all stocks, with tech still leading the sell-off
The latest data from Goldman Sachs Prime Brokerage, detailed in their weekly GS Equities Weekly Rundown note for professional subscribers, shows that US Long/Short gross leverage has fallen for the sixth consecutive week, with net leverage experiencing the largest year-to-date decrease. This indicates risk reduction and caution among hedge funds, with US equities being net sold for the third consecutive week. This selling was driven by both long and short sales in single stocks, the largest since March 2022, outweighing short covers in Macro Products
Key Details: Risk Exposures: US Fundamental Long/Short gross leverage dropped for the sixth week in a row by 3.4 points to 190.8% (62nd percentile over three years), and net leverage fell by 2.0 points to 53.1% (42nd percentile over three years). The long/short ratio fell by 1.1% to 1.771 (40th percentile over three years)
Trading Flows: Hedge funds net sold US equities for the third week in a row, primarily through long sales, with overall short activity remaining flat. This was the largest notional decrease in US gross trading activity this year. Macro Products were net bought due to short covering, while single stocks saw significant net selling for the second consecutive week and the largest since March 2022
Eight of eleven US sectors were net sold, with Information Technology, Staples, Real Estate, and Financials leading in notional terms, while Industrials, Materials, and Energy were net bought. Staples stocks were net sold for the third week, driven entirely by short sales
There was a positive note: hedge funds switched to net buying the Materials sector at the fastest pace in five months, driven by long buys outpacing short sales by approximately 5 to 1, particularly in the Chemicals and Metals & Mining subsectors
Goldman's share sales trading desk reported high activity levels, especially on Friday for the Russell Rebalance Superbowl, with significant block inquiries. The week was marked by disappointing consumer prints, a debate between Software and Semiconductors (with Micron's earnings leading to a bounce in Software stocks), strong performance in Cyclicals, and pre-positioning for the presidential election
For the week, long-only funds finished with a sell skew of $6.5 billion but managed a $17 billion buy skew for June, one of the largest on record. Hedge funds were net sellers by $1.2 billion for the week and $5 billion for the month, focusing on selling in the Semiconductor sector and rotating into other areas of TMT
In summary, while retail investors continue to chase major tech stocks like Nvidia, hedge funds are quietly offloading as much as possible without causing a market crash, though the tipping point is nearing