Deregulation Becomes Key Focus for Hedge Fund Investments, Says Goldman Sachs
Goldman Sachs strategists observed significant changes in hedge fund portfolios following the post-election policy shifts after President Donald Trump’s win. These shifts were particularly evident in the fourth quarter of 2024, where hedge funds adjusted their positions to capitalize on anticipated deregulation and its potential impact on specific sectors.
- Increase in Holdings of Deregulation Beneficiaries
Hedge funds increased their positions in stocks likely to benefit from deregulation. These included companies such as Capital One Financial Corp. (COF), which Goldman Sachs labeled as a “new VIP,” as well as Stifel Financial Corp. (SF), Tesla (TSLA), and The Williams Companies (WMB). - Shift Toward Domestic and Small Business Exposure
Hedge funds also boosted their exposure to stocks with significant small business exposure and those benefiting from domestic sales, reflecting a broader trend in the portfolio adjustments.
Decreased Exposure to International Risks
While hedge funds shifted toward deregulation beneficiaries, they also reduced their positions in stocks exposed to China supply chains, international sales, and tariffs risk. This move reflects concerns about potential disruptions in global trade relations and international market volatility.
- Impact on Stocks with China and International Exposure
Hedge fund ownership of stocks with China sales exposure saw a modest decrease of about -1 basis points. Moreover, stocks with international sales exposure experienced a more significant drop of about -12 basis points. Stocks with exposure to tariffs risk saw the largest reduction, with about -20 basis points in ownership.
Breakdown of Hedge Fund Position Changes
Goldman Sachs analysts provided a detailed breakdown of hedge fund positioning, showing the shifts in various sectors:
- Deregulation Beneficiaries: Increased by about 25 basis points during the fourth quarter.
- Financial Deregulation and Small Business Exposure: Saw an increase of approximately 15 basis points.
- Domestic Sales Exposure: Gained 8 basis points.
- China Sales Exposure: Decreased by -1 basis points.
- Stocks Exposed to Tariff Risk: Saw a -20 basis points decline.
Key Stocks and Their Performance
Goldman Sachs also highlighted certain stocks that showed significant changes in short interest and total return year-to-date (YTD). Some of these stocks include:
- RTX Corporation (RTX): No change in short interest, total return YTD: 6%.
- Novavax, Inc. (NVAX): Short interest decreased by -2 percentage points, total return YTD: 2%.
- Emergent BioSolutions Inc. (EBS): No change in short interest, total return YTD: 2%.
- Moderna, Inc. (MRNA): Short interest increased by +2 percentage points, total return YTD: -21%.
- Triumph Group, Inc. (TGI): Short interest decreased by -4 percentage points, total return YTD: 36%.
- Mercury Systems, Inc. (MRCY): No change in short interest, total return YTD: 6%.
- V2X Inc. (VVX): Short interest increased by +5 percentage points, total return YTD: -6%.
- Parsons Corporation (PSN): Short interest increased by +2 percentage points, total return YTD: -20%.
- Science Applications International Corp. (SAIC): Short interest increased by +3 percentage points, total return YTD: -9%.
- Hexcel Corporation (HXL): Short interest increased by +1 percentage point, total return YTD: 5%.
- CACI International Inc. (CACI): Short interest increased by +3 percentage points, total return YTD: -16%.
- Booz Allen Hamilton Holding Corporation (BAH): Short interest increased by +2 percentage points, total return YTD: -8%.
- Kratos Defense & Security Solutions, Inc. (KTOS): Short interest increased by +1 percentage point, total return YTD: 3%.
- Huntington Ingalls Industries, Inc. (HII): Short interest increased by +1 percentage point, total return YTD: -15%.
- Leidos Holdings, Inc. (LDOS): Short interest increased by +1 percentage point, total return YTD: -8%.
- Leonardo DRS, Inc. (DRS): No change in short interest, total return YTD: -10%.
- AECOM (ACM): No change in short interest, total return YTD: -6%.
- KBR, Inc. (KBR): No change in short interest, total return YTD: -10%.
- Northrop Grumman Corp. (NOC): No change in short interest, total return YTD: -6%.
- L3Harris Technologies Inc. (LHX): No change in short interest, total return YTD: -6%.
- Pfizer Inc. (PFE): No change in short interest, total return YTD: -2%.
- Lockheed Martin Corporation (LMT): No change in short interest, total return YTD: -13%.
- General Dynamics Corporation (GD): No change in short interest, total return YTD: -8%.
These adjustments reflect ongoing changes in market sentiment and hedge fund strategies, as investors look to position themselves for potential regulatory shifts and broader economic trends.
