Hedge Funds Reposition Portfolios Amidst Regulatory and Trade Policy Changes
Goldman Sachs strategists have observed significant shifts in hedge fund positioning following policy changes enacted after President Donald Trump’s election. The latest analysis from Goldman Sachs reveals that hedge funds increased exposure to stocks benefiting from deregulation while reducing investments in companies tied to China’s supply chains and international sales.
Key Investment Trends in Q4 2024
Senior strategist Ben Snider from Goldman Sachs’ U.S. portfolio strategy macro team noted that hedge fund portfolios reflected many “consensus Trump trades.” These included heightened investments in financial institutions and small businesses poised to gain from deregulation. Among the standout beneficiaries were:
- Capital One Financial Corp. (COF) – a “new VIP” in hedge fund portfolios.
- Stifel Financial Corp. (SF), Tesla (TSLA), and The Williams Companies (WMB) – emerging as “rising stars.”
Conversely, hedge funds decreased holdings in stocks exposed to Chinese supply chains, international sales, and tariff risks.
Sector-Wise Hedge Fund Positioning Changes
- Stocks benefiting from deregulation: Increased by 25 basis points.
- Financial deregulation & small business exposure: Rose by 15 basis points.
- Domestic sales-focused stocks: Gained 8 basis points.
- China sales-exposed stocks: Declined by 1 basis point.
- China supply chain & international sales-exposed stocks: Dropped by 12 basis points.
- Tariff-risk-exposed stocks: Fell by 20 basis points.
Stocks with U.S. Government Exposure Risk and Short Interest Movements
Goldman Sachs analysts highlighted stocks with notable U.S. government exposure and their short interest changes since November 5, 2024.
Key Short Interest Adjustments and Year-to-Date Returns:
- Novavax, Inc. (NVAX): Short interest change: -2 pp; YTD return: 2%
- Emergent BioSolutions Inc. (EBS): Short interest change: -0 pp; YTD return: 2%
- Moderna, Inc. (MRNA): Short interest change: 2 pp; YTD return: -21%
- Triumph Group, Inc. (TGI): Short interest change: -4 pp; YTD return: 36%
- Mercury Systems, Inc. (MRCY): Short interest change: -0 pp; YTD return: 6%
- V2X Inc (VVX): Short interest change: 5 pp; YTD return: -6%
- Parsons Corporation (PSN): Short interest change: 2 pp; YTD return: -20%
- Science Applications International Corp. (SAIC): Short interest change: 3 pp; YTD return: -9%
- Hexcel Corporation (HXL): Short interest change: 1 pp; YTD return: 5%
- CACI International Inc (CACI): Short interest change: 3 pp; YTD return: -16%
- Booz Allen Hamilton Holding Corporation (BAH): Short interest change: 2 pp; YTD return: -8%
- Kratos Defense & Security Solutions, Inc. (KTOS): Short interest change: 1 pp; YTD return: 3%
- Huntington Ingalls Industries, Inc. (HII): Short interest change: 1 pp; YTD return: -15%
- Leidos Holdings, Inc. (LDOS): Short interest change: 1 pp; YTD return: -8%
- Leonardo DRS, Inc. (DRS): Short interest change: -0 pp; YTD return: -10%
- AECOM (ACM): Short interest change: 0 pp; YTD return: -6%
- KBR, Inc. (KBR): Short interest change: -0 pp; YTD return: -10%
- Northrop Grumman Corp. (NOC): Short interest change: 0 pp; YTD return: -6%
- L3Harris Technologies Inc (LHX): Short interest change: 0 pp; YTD return: -6%
- Pfizer Inc. (PFE): Short interest change: 0 pp; YTD return: -2%
- Lockheed Martin Corporation (LMT): Short interest change: 0 pp; YTD return: -13%
- General Dynamics Corporation (GD): Short interest change: -0 pp; YTD return: -8%
- RTX Corporation (RTX): Short interest change: -0 pp; YTD return: 6%
Market Implications and Strategic Outlook
The latest hedge fund realignments indicate a strategic pivot toward deregulation beneficiaries and small business exposure while reducing positions in stocks vulnerable to global trade uncertainties. With financial deregulation policies shaping market movements, hedge funds are betting on domestic growth over international risks, a trend that may continue influencing market sentiment throughout 2025.
