Hedge funds benefit from momentum while searching for other opportunities - Goldman Sachs

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Hedge funds benefit from momentum while searching for other opportunities - Goldman Sachs

Analysts at Goldman Sachs said in a note this week covering hedge funds that the strong equity market momentum has lifted the average hedge fund to a 4% year-to-date return and its hedge fund crowding index to a new record high.

They explained the momentum in "magnificent mega-caps" is benefitting hedge funds while they search for other opportunities.

"The Magnificent 7 - except for TSLA - rank as 6 of the top 7 stocks on our Hedge Fund VIP list of the most popular hedge fund positions," wrote the analysts. "LLY ranks at #16. Hedge fund long portfolios now carry a record tilt toward momentum as a factor and the largest tilt toward Growth since 2016."

After jumping in 2023, gross leverage has continued to climb to new record highs, according to Goldman Sachs. However, they note that the sharp momentum unwind in late 2023 inspired funds to diversify portfolios,

"Funds actively trimmed positions in the popular mega-caps during 4Q," they said. "While trimming exposure to mega-cap tech, hedge funds looked for new alpha in cyclicals and other pockets of growth."

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