Goldman Prime: Hedge Funds Were Calm Amid Yesterday’s Carnage, Here’s Why…

One would think that as stocks careened off the cliff yesterday, that hedge funds were among the most active sellers. One would be wrong for two reasons: hedge funds were already extremely bearish heading into the latest market meltdown, drastically cutting down on net leverage, and they were also aggressively hedging for just this slide, having bought up huge amount of puts protecting against a downturn.

According to the Goldman prime desk, as stock markets sold off sharply yesterday, US equities on the GS Prime book were only “modestly” net sold (1-Year Z score -0.3) driven by short sales outpacing long buys.

Some more details from GS Prime:

Macro Products (Index and ETF combined) and Single Stocks were both net sold, driven by short sales; however, magnitude of the selling for both was fairly modest in $ terms. Note that activity level across the GS high touch channels yesterday was characterized as a 4 on 1-10 scale.

US ETF shorts on the GS Prime book increased +2.1% yesterday (after decreasing -2.7% on Monday), driven by shorting in Corporate Bond and Large Cap Equity ETFs.  

Single Stock shorts increased +0.6% (and are now up +2.2% WoW and up +6% MoM), as 8 of 11 sectors saw increased shorting activity. On a MTD basis across all US Single Stocks, cumulative $ short selling on the GS Prime book has outpaced the cumulative $ long buying by nearly 6 to 1.

Info Tech, Industrials, Comm Svcs, and Utilities were the most $ net sold US sectors yesterday, while Staples, Real Estates, and Consumer Disc were the most $ net bought.

Turning attention to tech names, the Goldman TMT mega caps (FAAMG) collectively were net sold for a 5th straight day, driven by long-and-short sales.

In $ terms, the cumulative net selling across the FAAMG complex over the past week was the largest over any 5-day period YTD.

The aggregate FAAMG long/short ratio (MV) ended yesterday at 9.0 (vs. the YTD peak of 19.9 on 3/24 and 15.4 at the start of April), the lowest level since late January (in the 5th percentile vs. the past five years).

And visually: