Investing.com -- Hedge funds significantly reduced their exposure to U.S. equities last week, marking the fastest pace of net selling in three months, according to a report from Goldman Sachs.
The investment bank said this was driven by short sales across both single stocks and macro products, with the notional short-selling volume reaching its highest levels since September 2023.
“Eight of 11 sectors were net sold on the week,” Goldman Sachs analysts wrote, citing Financials, Healthcare, and Consumer Discretionary as the most offloaded sectors. Meanwhile, Materials, Information Technology, and Staples were the only sectors to see net buying.
Despite the selloff by hedge funds, long-only funds and other hedge funds were net buyers, adding $6 billion and $2.5 billion, respectively.
Demand was said to be strongest in Consumer Discretionary and Staples, each seeing $2 billion in inflows, followed by Energy and Financials, which each gained $1 billion.
Information Technology and Communication Services faced the heaviest outflows, with $2 billion in net selling for each sector.
Goldman noted that the equity market remained buoyed by positive earnings reports and signs of a resilient U.S. consumer. Broader market indices recorded gains, with the Russell 2000 up 4.5%, the Nasdaq 100 up 1.9%, and the S&P 500 gaining 1.7% during the week.
In the derivatives market, Goldman Sachs highlighted increased demand for financials-related options, particularly in the Financial Select Sector SPDR Fund (NYSE:XLF).
“The call wing has gone bid from upside demand,” the analysts noted, recommending call spreads as a strategy.
Goldman Sachs also observed shifts in exchange-traded funds (ETFs), particularly in semiconductors, where investors have reduced their holdings by $350 million over the past month.
They explained that this trend was largely influenced by varying levels of exposure to Nvidia (NASDAQ:NVDA) within popular ETFs.
The activity underscores the continued volatility and sector rotation shaping the current U.S. equity landscape.