Hedge funds stung by European stock markets in October, Goldman Sachs says

By Nell Mackenzie

LONDON (Reuters) – Hedge funds focused on European stock markets suffered their largest monthly losses in over a year in October, dragged down by a broader market sell off, according to a Goldman Sachs note sent to clients on Friday and seen by Reuters on Monday.

European stock pickers returned a negative 2.6% in October, their largest monthly loss since September 2023, Goldman Sachs said.

The region’s broadest index of European stocks fell 3.6% in October during the third-quarter earnings season, which has seen positive results from banks, pharmaceuticals and biotech companies offset by a drag from industrials and energy companies.

European stocks were sold broadly by all market participants, as global traders dumped their European holdings in favour of hoovering up U.S. equities ahead of the presidential elections, the note said.

Declining stock values in Europe knocked year-to-date returns for European traders down to 5%, less than half the 11.5% posted by U.S. stock pickers.

Losses mostly resulted from utilities stocks like gas, electric and water companies, Goldman said.

Industrial stocks and short positions, which bet on a fall in the value of a company’s shares, made money for some of the hedge funds, it added.

Stocks that experienced the biggest net selling were from hardware tech like semiconductor and semiconductor equipment companies, as well as the aerospace and defence sectors, the bank said.

Financial stocks, which typically include banks, were the most net-bought sector for a second month in a row, with hedge funds ditching short positions and adding long positions which bet on a rise in value, Goldman said, without giving a further breakdown.

European-focused fundamental stock pickers “substantially” decreased gross leverage in October, the bank said, while net leverage hit its lowest this year.

(Reporting by Nell Mackenzie; Editing by Kirsten Donovan)