Hedge funds are turning cautious with stocks at record highs
Stock-picking hedge funds climbed modestly in July, in line with the broader market, but their positioning has turned more cautious with the S & P 500 sitting near a record high. Global fundamental long-short hedge funds returned 1.5% in July on an asset-weighted basis, bringing their year-to-date gains to 7.8%, according to data from Goldman Sachs prime brokerage. Managers piled into individual stocks for a third straight month to ride the market’s resilient bull run, the data showed. Still, hedge funds were net sellers of technology stocks in July and bought defensive companies for the third month in a row, indicating more measured positioning heading into August, according to Goldman’s prime book. The stock market has chugged along, reaching multiple record highs in late July, as investors cheered corporate profits that came in the face of higher tariffs. So far this earnings season, 82% of the companies in the S & P 500 have reported earnings that surpassed analyst expectations, above the 10-year average of 75% and the largest percentage since the third quarter of 2021, according to FactSet. The S & P 500 jumped 2.2% in July, enjoying a third straight month of gains, and bringing the 2025 advance to 7.6%. The tech-heavy Nasdaq Composite advanced 3.7% in the period, its fourth straight winning month. .SPX YTD mountain S & P 500 year to date Reduced short selling Hedge funds’ notional short selling in July fell to the lowest level in a year as speculation returned to Wall Street, with individual traders reviving a frenzy in meme stocks. Retail investors have been buying the dip in stocks all year and been handsomely rewarded as the market rebounded violently to new heights after an early spring slump. “Retail exuberance masks continued institutional caution,” Emmanuel Cau, head of European equity strategy at Barclays, said in a note to clients. “Retail investors are buying equities at full speed … while hedge funds have trimmed their equity long positions.” Systemic long-short hedge funds, also called quantitative strategies, didn’t fare as well, declining for a second straight month and showing a loss of 2% in July, Goldman data showed. Year to date, those funds are still up about 10%. Citadel, Schonfeld Citadel’s multistrategy Wellington fund, its largest, gained 1.3% in July, bringing its 2025 advance to 4%, according to a person familiar with the firm’s returns who asked to remain anonymous as the information is private. Citadel’s tactical trading fund, which combines equities and quantitative strategies, rose 2.1% in the same period and is up 8.3% year to date, the person said. Its global equities fund rose 3.1%, pushing 2025 returns to 6.3%, the person said. Schonfeld Strategic Advisors’ flagship fund Strategic Partners dipped 0.3% in July, cutting 2025 gains to 5.8%, according to another person. Fundamental Equity fund gained 1.4% in July and is up 7.1% this year, the person said. Citadel and Schonfeld declined to comment. — CNBC’s Michael Bloom contributed reporting.
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