Hedge funds indicate stock market decline

Business Banking Insight

Hedge funds’ returns have been inconsistent in recent years. However, they still carry an aura of being manned by the smartest investors in the investment community.

Hedge funds

Therefore, their activities are closely monitored by the market. The latest statistics do not reassure the rest of the investment community.

According to a compilation by investment bank Goldman Sachs, hedge funds have now taken the most cautious stance on stocks in at least 10 years.

Record-low exposure

Goldman Sachs has calculated the ratio between long positions and short positions among the world’s largest hedge funds that are clients of the bank. Currently, it is at a record-low of 1.6.

This means that as a group, they still have a positive balance towards stocks in their portfolios.

However, it is the lowest net exposure since the measurements began in 2013.

Prime Book Long/Short ratio


Goldman Sachs’ analysis is not unique. Other measurements suggest the same cautious attitude towards stocks among hedge funds.

This exposure indicates that hedge funds, to a greater extent than before, anticipate a stock market decline.

But it does not necessarily mean that the stock market will fall.

Among hedge funds, there is also a large share of trend-following participants. They sell when the market goes down and buy when the market goes up.

The talent does not need to be greater than that.