The Blubber

Hedge funds unloaded single-stock positions on Friday at the highest rate in over two years, with some activity resembling the dramatic market pullback of March 2020, when portfolio managers slashed exposure during the early days of the pandemic, Goldman Sachs said in a note on Monday.

U.S. stock markets tumbled on Monday, with the Nasdaq falling 4% amid concerns that President Donald Trump’s tariff policies could push the world’s largest economy into recession.

“It was a classic de-leveraging crunch,” said James Koutoulas, CEO of hedge fund Typhon Capital Management.

Goldman Sachs noted that hedge fund selling of individual stocks was the most aggressive in more than two years, adding that some of the rapid de-risking mirrored past market turmoil, such as March 2020 and January 2021, when hedge funds scrambled to cover short positions in so-called meme stocks.

Hedge Funds Cutting Exposure Amid High Leverage

The wave of selling comes as hedge fund leverage sits at record highs. A separate Goldman Sachs report found that overall hedge fund leverage in equity positions had reached 2.9 times their portfolios, the highest level in the past five years.

Some investors told Reuters they were concerned that highly leveraged funds could continue de-risking in the days ahead, potentially delaying any market rebound.

Hedge funds unwound both long and short positions, with Goldman Sachs highlighting that many of these trades were “crowded,” meaning they were widely held by investors.

A risk-off trend was observed across 10 of the 11 global market sectors, with industrials taking the biggest hit. The trend was most pronounced in the U.S. but was also evident across other regions.

As of Monday morning, before markets fell further, long/short equity hedge funds were down 1.5%, while systematic hedge funds posted a 0.3% decline, according to Goldman Sachs.