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  • Writer's pictureThe San Juan Daily Star

Hedge funds dump tech, consumer stocks at start of year, banks say

Global hedge funds last week sold tech shares for a third week running as managers chased falls in the S&P 500 index and cut exposure to big tech stocks, a Goldman Sachs note said.

U.S. tech stocks were the most net sold sector in the week to Jan. 6 with hedge funds shedding these stocks at the highest level in 11 weeks, the Goldman note to clients on Friday said.

Hedge funds not only cut long positions but piled into short bets that the prices on these equities would fall, the note added.

Apart from communications devices, all kinds of tech shares were sold, said the bank, including software companies, semi conductors, tech hardware and storage companies related to the technology industry.

European tech stocks fell 4.24% last week, their biggest weekly drop since July, while the tech-heavy Nasdaq stock index tumbled just over 3% and the S&P kicked off 2024 with its worst weekly showing in months.

Goldman’s prime brokerage department, which serves hedge funds, saw stockpickers’ performances fall 1.07% in the week between Dec. 29 and Jan. 4, the note said.

Hedge funds got hit by falling technology and media-related stocks, said a separate note by Morgan Stanley dated Jan. 5 but seen by Reuters on Monday.

Global hedge funds trading long and short positions in stocks saw a 1.2% negative performance for the week ending Jan. 5, said the note.

Hedge funds did not hold as many short positions going into the week and therefore, what profits they might have picked up from falling stock markets were not enough to cover their bullish bets.

Stock-picking hedge funds often hold both long and short positions in order to take advantage of both upward and downward stock price movements.

Elsewhere, hedge funds also ditched consumer discretionary companies making products that shoppers typically like to buy but do not necessarily need, the Goldman Sachs note said.

Speculators fled these positions at the fastest pace since September 2023, Goldman said, adding that traders were net sold globally in hotels and restaurants, retail stores, and auto companies.

Hedge funds that were already short in the consumer discretionary sector saw a 3.5% bump in performance, said Goldman.

German perfume retailer Douglas is considering going public in the first quarter of the year, people familiar with the matter told Reuters, in what could be one of the first major tests for European IPOs in 2024.

The private equity-backed company is set to release earnings encompassing the Christmas season in the coming weeks, with a view to listing on the Frankfurt Stock Exchange by March if market conditions allow, the people said.

The listing is set to give the CVC-owned retailer a valuation of up to 7 billion euros ($7.65 billion), one of the people said, speaking on condition of anonymity.

No final decision has been made on the timing and the IPO plans could be delayed, the people cautioned. Douglas declined to comment.

Proceeds from the IPO will be used to help pay down debt, the people said.

The company had 3.4 billion euros of net debt at the end of September, including store leases, equating to about 4.7 times its adjusted core earnings.

Under new CEO Sander van der Laan, Douglas posted a 12% rise in sales to more than 4 billion euros in the year to September 2023, with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of around 726 million euros.

Its listing would come after a quiet two years for initial public offerings, as soaring debt costs and geopolitical uncertainty dampened sentiment towards new stock listings.

Last year was the worst for global IPOs since 2009 with $120 billion raised, according to Dealogic data.

Yet, IPO bankers ended 2023 on a positive note, with the U.S. Federal Reserve signalling it may start reversing interest rates in the new year, which would be a boost to new listings.

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