Hedge funds are dumping these stocks most exposed to tight financial conditions
As the banking crisis unfolded, hedge funds turned bearish on financials and other stocks exposed to tightening credit conditions, according to Goldman Sachs. The smart-money cohort has sharply reduced net exposures to “Lending Sensitive Stocks” in the aftermath of the collapse of Silicon Valley Bank, according to Goldman’s prime brokerage data. These companies often have a high level of debt on their balance sheets, and they could be hurt by rising borrowing costs. The hedge funds’ long positions in those credit-sensitive companies divided by short positions — known as the long/short ratio — ended last week at 1.72, the lowest level in more than five years, the data said. Other than banks, a slew of companies in other industries could have similar risk highlighted by the banking crisis. Goldman’s basket of lending-sensitive stocks includes private equity firms Carlyle Group and KKR & Co , motorcycle retailer Harley-Davidson , hotel operators Hyatt Hotels , Marriott International and auto names General Motors and Ford Motor . Meanwhile, hedge funds have been dumping U.S. bank stocks amid the chaos with long/short ratio in that category standing at 1.28, near a 10-year low, Goldman said. “Nearly all subsectors were net sold and shorted on the week, led in notional terms by Banks, Mortgage Finance, and Mortgage REITs,” the firm said. The demise of Silicon Valley Bank left investors concerned that other regional banks might face similar balance sheet issues, a possible mismatch between long-dated assets and short-dated liabilities. – CNBC’s Michael Bloom contributed to this report.