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Hedge funds added 4.6 short positions to each long position from
July 7 to Aug. 3. "After three straight weeks of risk unwinds,
the overall prime book was net sold on the week," the report
said.
Hedge funds were forced to partially unwind short bets in July
to avoid further losses during a market rally triggered by
better-than-expected corporate earnings.
The rally was interrupted this week after credit rating agency
Fitch downgraded the U.S. ahead of an expected flood of Treasury
supply in the third quarter. Higher yields can reduce the appeal
of stocks.
Both the S&P 500 and Nasdaq Composite registered their biggest
weekly declines since the week ended on March 10, with losses of
2.27% and 2.85%, respectively.
Goldman Sachs, as one of the biggest providers of lending and
trading services through its prime brokerage unit, can track the
movements of large hedge funds and asset managers.
The bank said its clients are placing bearish bets mainly
through indexes and exchange-traded funds, not using particular
stocks.
Equity long/short hedge funds have been vocal about the
challenges of being bearish this year, as they were caught
off-guard by a rally. Their performances have been hit by the
losses with short positions.
Billionaire investor Daniel Loeb said in a letter on Thursday he
had decided to trim his short bets to limit the vulnerability of
his hedge fund, Third Point.
Investors were more bearish on North America and Asia, driven by
Japan, and more bullish on Europe.
(Reporting by Carolina Mandl in New York; Editing by Leslie
Adler and Richard Chang)
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