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Hedge fund leverage reaches five-year high, buying bank stocks, Goldman Sachs says

investing.com • 1 days ago

Hedge Fund Leverage Peaks

By Nell Mackenzie

LONDON (Reuters) – Hedge fund leverage hit a five-year high last week, with speculators buying banks, trading companies, and insurance firms, according to Goldman Sachs data. This surge followed the steady holding of U.S. interest rates and coincided with U.S. attacks on Iran’s nuclear sites.

The U.S. Federal Reserve held interest rates steady last Wednesday and indicated they are not in a hurry to lower them.

After the U.S. attacked Iranian nuclear sites on Saturday, oil prices approached a year-high on Monday, with further gains anticipated due to fears that Iran may retaliate by closing the Strait of Hormuz, a critical waterway for global crude supply.

Gross leverage, a measure of hedge fund trading, rose to approximately 294%, the highest since 2020, up from 271.8% at the beginning of the year.

Hedge funds increased their short positions in Europe and Asia while maintaining a modest long position on North American stocks, as per Goldman Sachs prime brokerage data.

A short position anticipates a stock price decline, whereas a long position bets on a price increase.

Financial stocks, including banks, insurance companies, and trading firms, were among the most favored stock sectors last week. These firms’ balance sheets benefit from higher interest rates, particularly banks that earn income from lending.

Hedge funds purchased stocks of financial firms in North America and Europe but held slight short positions in these shares in Asia, the Goldman Sachs note revealed.

Additionally, hedge funds ended the week with a net long position in energy stocks.

Global stock picking returns increased by over 4% this year, with European returns exceeding 10%. Global systematic returns approached 12%, the note reported.

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