Hedge fund traders are on edge amid the roiling geopolitical conflict, but they’re still trying to hold onto their marquee stocks by adding hedges, according to a Goldman Sachs equities expert.
John Flood, head of Americas Equities Execution Services at Goldman Sachs Global Banking & Markets, says in a new interview that macro factors have entered a period of “extreme uncertainty.”
“Let’s start with hedge funds, who are our most active traders from the institutional community. They have held onto their single stock longs because there’s still high conviction in your core ideas. But due to the macro uncertainty, we’re seeing an extreme of amount of hedging. And what that means is we’re seeing a lot of shorting of macro products: futures, ETFs, custom baskets. So, there’s a thought that, okay, we’re bracing for more of this headline risk. I don’t want to give up on the names that I’ve held for a long time that I think are alpha generating. But I need to make sure I’m fully hedged up.”
Flood notes that one of the most prominent current themes in the market is exposure to Asia, particularly South Korea and Taiwan.
“Korea and Taiwan have been excellent trades. And the hedge fund community and institutional investors are long these regions right now. During this unrest, we’ve seen a pull back. So, you’ve had a drawdown in the momentum factor. Korea. Taiwan. Viewed as high momentum. High momentum areas of the market. The momentum factor is pulled back. What is this trade easiest expressed? It’s long semis versus short software. That’s the AI trade. So, it’s Korea, it’s Taiwan, it’s momentum.”
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