Hedge fund traders are on edge because of the roiling geopolitical conflict, but they are still trying to hold on to their big holdings by adding hedges, according to a Goldman Sachs equity 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, which are our most active traders from the institutional community. They’ve held on to their long positions on individual stocks because there’s still a lot of conviction in your core ideas. But because of the macro uncertainty, we’re seeing an extreme degree of hedging. And what that means is we’re seeing a lot of shorting on macro products: futures, ETFs, custom baskets. So there’s a thought that, OK, we’re bracing for more of this general risk. I’m not doing that.” I want to give up the names that I have had for a long time and that I think generate alpha. But I have to make sure I’m fully covered.”
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 turmoil, we’ve seen a pullback. So you’ve had a pullback in the momentum factor. Korea. Taiwan. Viewed as high momentum. High momentum areas of the market. The momentum factor is pulling back. What’s the easiest way to express this trade? 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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