Morgan Stanley said in a note this week that hedge funds sold equities globally in the week ending June 27th, focusing on North America and Asia excluding Japan. This selling was partially offset by purchases in Europe and Japan.
In North America, the bank said hedge funds trimmed "higher-quality" stocks perceived to benefit from AI, with semiconductors leading the decline. This trend has accelerated recently, although the overall selling is lower than May's. Notably, the focus shifted from software to semiconductors.
In addition, they noted that hedge funds also reduced exposure to discretionary sectors and increased short positions in staples. Interestingly, they sold "Quality" stocks while buying "Growth," with Quality positioning at a 10-year high and Growth at a 10-year low. This shift towards Growth included software purchases later in the week.
Morgan Stanley added that Asia (ex-Japan) saw selling in China and Taiwan. China involved short selling and reducing longs across sectors, while Taiwan's selling concentrated on semiconductors.
Furthermore, European markets are said to have displayed muted activity despite pre-election volatility, resulting in a small net buy. Financials were bought across most countries, while industrials saw selling, especially in France. Japan reportedly saw minimal buying activity.
While most hedge fund strategies delivered mid-to-high single-digit gains in the first half, Morgan Stanley stated that recent weeks have been challenging for returns due to factor shifts. Hedge funds are said to have slightly outperformed benchmarks for the week but underperformed in June due to negative alpha generation. Year-to-date, Asia-based managers remain the top performers.