Walking in the hustle and bustle of people? ‘Smart money’ is starting to quietly leave the US
Smell risk? As U.S. stocks enter a bull market, hedge funds retreat and turn to bets on the region…
Hedge funds have slashed bets on a U.S. stock market rally to the lowest level in at least a decade and turned to Europe amid concerns that a U.S. tech-led rally may fail Keep going.
Hedge funds’ weight in U.S. stocks fell to the lowest level since records began in 2013, while their bets on European stocks rose to their highest level ever, according to Goldman Sachs prime brokerage data .
Alison Savas, investment director at Australia-based Antipodes Partners, said the U.S. stock market rally, led by the likes of Nvidia, Apple and Amazon, has left some companies looking stretched relative to their earnings potential. ” It’s hard to justify the price-to-earnings ratios for many U.S. tech companies, ” Savas said .
Savas’ firm manages about 30 percent of the $10 billion in assets in Europe, above its U.S. exposure. Savas said:
“We agree that Nvidia is a great business, but as a value investor, we can’t do that.”
The Nasdaq Composite has had its best first half in 40 years and is up about 31% so far this year, while the S&P 500 has risen about 15%.
However, as the Fed prepares to hike rates further to curb inflation, many commentators expect this to trigger a downturn. What’s more, the modest gains in stocks could soon be reversed.
At the same time, the performance of European stock markets is relatively sluggish. The European Stoxx 600 index has risen only about 5% this year, and the British FTSE 100 index has fallen this year. ” Hedge funds are starting to prepare for downside risks in U.S. stocks ,” Goldman Sachs analyst Vincent Lin wrote in a recent note to clients .
In a market where a group of highly valued stocks has driven most of the gains, fund managers looking to profit by picking individual stocks won’t find many opportunities, said Samantha Rosenstock, head of investment research at Man FRM . She said:
“Fund managers see little difference between U.S. companies. Conversely, in Europe, equities are less expensive and therefore more attractive.”
However, data on call options, a gauge of market sentiment, showed investors were not particularly interested in the European blue-chip index, known as the Euro Stoxx 50.
Ankit Gheedia, head of European equity and derivatives strategy at BNP Paribas, said that as interest rates rise, ” value stocks should outperform growth stocks , which is usually good for Europe. The gram index is cautious .”
A senior executive at a major U.S. bank’s high-end services arm warned against betting lightly on Europe’s outperformance when looking back at history , noting that the U.S. economy has proven resilient so far despite rising interest rates. According to the executive:
“Previously, most people expected a recession in the U.S., they thought the market was overvaluing the U.S. stock market beyond reality, but then the stock market rose about 10% in the past one to two months.”