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LONDON (Reuters) – Global hedge funds exited trades in the past week at their fastest pace since January and at one of the highest rates seen in the last five years, as recession bets have yet to pay off, a Goldman Sachs (NYSE:GS) note to clients showed on Wednesday.
Hedge funds cut losses after failing to match gains in the wider more cheaply held benchmark, MSCI’s broadest world stock index, which has risen more than 15% this year, said the note seen by Reuters.
By contrast, stock-trading hedge funds have posted a positive year-to-date performance of 5.8% and computer programme-led funds are up 3.2%, according to the note.
Data last week showing U.S. inflation cooling further boosted hopes of a soft landing for the world economy, powering shares higher.
The failure of short bets on declining stock prices was one reason cited for why hedge funds might be leaving trades, said the note.
Hedge funds that pick trades, rather than letting computer algorithms choose, began to struggle in late June and the performance of their trades worsened in July, it said.
Hedge funds dropped short bets aimed at specific companies, like those focused on energy, financials, and health care. However, sectors such as food and beverage companies, those selling household goods, offering information technology and working in real estate, saw increased shorting activity, said the note.
While 60% of the trades that were abandoned were in U.S. stocks, hedge funds also ditched bets on so called macro products, related to how currencies, commodities and bonds react to the broader economic environment.
