Hedge funds are moving to buy banks, insurance and trading firms, says Goldman Sachs

By Nell Mackenzie

LONDON (Reuters) – Banks, insurance and trading firms returned to favor as hedge funds recovered shares of these companies last week at the fastest pace since June 2023, a Goldman Sachs note showed.

After holding a net short position in seven of the past eight weeks, financials stocks were the most sought-after from Goldman Sachs’ prime brokerage trading desk, which lends to hedge funds and tracks their trades, the note released Friday and seen by Reuters. Monday showed.

Those bets consisted almost entirely of long positions, it said.

A short position bets that the price of an asset will fall in value, and a long position expects it to rise.

Europe’s STOXX 600 banking index rose about 1.9% in the week to last Friday, while the Dow Jones banking index closed up 1.6% for the week.

Hedge fund purchases were concentrated in North America and Europe, the note said.

Hedge funds have taken long positions in banks, insurance companies and capital markets that facilitate transactions.

On the other hand, they sold moderately in consumer finance companies and mortgage firms, Goldman said.

In general, hedge funds ended the week with more short positions in the stock markets, the note added.

Global stocks sold off for the ninth consecutive week and at the fastest pace in five months, it said.

Stock hedge funds posted a weekly performance gain of 0.42 percent, driven in part by a general rise in equity markets, the bank said.

The S&P 500 rose just over 4% last week, while the broadest European stock index rose 1.85%.

Systematic stock traders posted a negative -0.18% for the week to September 13, the note said.

(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Barbara Lewis)