Retail Investors Show Record Appetite for Equities
Retail investors in the US snapped up nearly $7 billion in equities last week, a near-record level of investment not seen since 2016. This comes even as hedge funds were seen cutting their global equity positions, according to a note to institutional investors from Morgan Stanley.
Betting Big on Exchange-Traded Funds
The Wall Street banking giant observed that retail investors' net purchases were primarily concentrated in exchange-traded funds (ETFs). Individuals also diversified across various sectors, only excluding communication, consumer staples, and utilities.
Year-to-Date Retail Appetite Dips
Despite recent investment surges, the overall retail investor appetite for the year up to July 7 has dipped by 60% in comparison to the first six months of each year between 2016 and 2022. Nonetheless, individuals have net purchased equities worth $80 billion this year so far.
Hedge Funds Reduce Global Equity Exposure
In contrast to retail investors, US-based long/short hedge funds reduced their exposure to global equities. Their gross leverage, which signifies hedge funds' positions on share price fluctuations, fell by 2% compared to the previous week.
Sector-Based Portfolio Adjustments in Hedge Funds
In terms of sector-specific adjustments, hedge funds primarily reduced their long exposure to the pharmaceutical industry and markets in Asia (excluding Japan). However, they increased holdings in consumer-related sectors and Japanese equities.
Market Performance and Hedge Fund Positions
Morgan Stanley, which tracks the positions of hedge funds through its prime brokerage, reported a roughly 1% decrease in US long/short hedge funds last week. In the same week, the S&P 500, Dow Jones, and Nasdaq fell by 1.2%, 2%, and 0.9% respectively.