Caroline Mandl
NEW YORK (Reuters) – Global hedge funds dumped stocks last week in a painful week for their portfolios as major U.S. indexes fell and hit long bets, Morgan Stanley said in a statement.
The bank described the past week as “one of the toughest we’ve seen in recent months for the average L/S fund,” or long/short fund based on what they’ve seen in their clients’ portfolios. The pain has largely focused on long fund positions, or bets that certain stocks will rise.
As one of the world’s largest prime brokerages, Morgan Stanley can track trends in stock flows and returns. Prime brokers provide services such as leverage and trading to hedge funds.
Last week, the index fell 0.48%, while the Nasdaq and Dow Jones indexes fell 1.1% and 0.93% after some technology companies such as Dell Technologies (NYSE:) and Salesforce ( NYSE:), disappointed. Additionally, some data showed the economy grew more slowly than previously expected in the first quarter, with jobless claims rising slightly more than expected.
Morgan Stanley said hedge funds sold shares in all regions, but mostly in North America, where sales were concentrated in the technology, media and telecom sectors and included big names.
“Mega-cap names made up a huge portion of the flow as hedge funds trimmed long positions while increasing short positions,” the note said.
Hedge funds also added short trades, when hedge funds bet that stocks will fall, in Europe and Asia, including Japan.
U.S. long/short returns fell 0.9% for the week ended May 30, compared with 1.3% for the S&P. They gained 1.4% in the month to May 30, while the index rose 4.1%, accounting for just 35% of the S&P’s gain for the month, according to Morgan Stanley.