Hedge Funds Swarm Back to Upended Markets With Short, Long Bets

After spending much of 2022 playing defense, professional speculators are reasserting themselves with aggressive equity bets on both the short and long side.

Hedge funds have raised exposure in back-to-back weeks, data from Goldman Sachs Group Inc.’s prime brokerage show, increasing short sales via macro products such as index futures while buying shares of individual firms. The moves resulted in their busiest week by notional trading volume in a year. The same trends were observed by Morgan Stanley, where hedge-fund clients boosted holdings in single stocks in areas such as technology and health care, while adding shorts against exchange-traded funds.

The data suggest that money mangers are both keen to pick up bargains and leery about the broader market’s direction. At least two Wall Street firms warned that rules-based funds are expected to offload billions of stocks in coming weeks.

The equity activity also marks a reversal from what hedge funds were doing most of the year: unwinding risky bets, or degrossing, amid heightened market volatility.

The latest move is “indicating increased willingness by managers to play offense in micro/idiosyncratic situations while hedging beta risk using ETFs/index instruments,” Goldman analysts including Vincent Lin wrote in a note to clients Friday.