Hedge Funds Shift Strategies Amidst U.S. Meme Stock Rally

Hedge funds have been making significant moves in the stock market this week, according to a note from Goldman Sachs seen by Reuters. As U.S. meme stocks rallied, hedge funds were quick to ditch their bearish bets at some of the highest rates seen in three years.

The note, published just before the rally faded, revealed that hedge funds dropped positions on the most actively shorted stocks tracked by a Goldman Sachs index. They also increased their long bets as retail investor favorites like GameStop and AMC saw a sharp rise in their stock prices, driven in part by the return of social media account “Roaring Kitty.”

Short positions, which bet on a decrease in asset value, were abandoned as hedge funds shifted to long positions, anticipating a rise in stock prices. The index, which includes AMC and GameStop, rose by over 5% during the week but was up just 0.5% on Friday, according to LSEG data.

Systematic hedge funds, known for using algorithms to catch market trends, heavily invested in long positions on Monday. However, they faced a 1.1% loss on Tuesday, marking their second worst day of the year. Despite this setback, the group remains up 11.6% for the year as of May 14.

Hedge funds that base their bets on fundamental factors saw a slight dip on Wednesday but are still up 7% for the year so far. GameStop and AMC saw a decline for a second consecutive session on Thursday, with GameStop’s shares tumbling 30% to close at $27.67 and AMC closing 15.3% lower at $4.64 after a brief surge earlier in the week.

Overall, the stock market has been a rollercoaster ride for hedge funds this week, with trends and investor sentiment playing a significant role in their decision-making. Stay tuned for more updates on how hedge funds navigate the volatile market landscape.