European Stock Markets Suffer Major Blow
October was a brutal month for hedge funds focused on European stock markets, with losses reaching their highest level in over a year. According to a recent note from Goldman Sachs, European stock pickers returned a dismal -2.6% in October, marking their largest monthly loss since September 2023.
Broader Market Sell-Off Takes Its Toll
The region’s broadest index of European stocks plummeted 3.6% in October, as the third-quarter earnings season brought mixed results. While banks, pharmaceuticals, and biotech companies reported positive earnings, industrials and energy companies dragged the market down. European stocks were sold off broadly by all market participants, as global traders flocked to U.S. equities ahead of the presidential elections.
Year-to-Date Returns Take a Hit
The decline in European stock values knocked year-to-date returns for European traders down to a meager 5%, less than half the 11.5% posted by U.S. stock pickers. The losses were largely driven by utilities stocks, including gas, electric, and water companies.
Industrial Stocks and Short Positions Offer Some Respite
However, industrial stocks and short positions, which bet on a fall in the value of a company’s shares, generated profits for some hedge funds. Financial stocks, typically including banks, were the most net-bought sector for the second month in a row, as hedge funds reduced short positions and added long positions betting on a rise in value.
Tech and Aerospace Stocks Take a Beating
The biggest net selling was seen in hardware tech stocks, including semiconductor and semiconductor equipment companies, as well as the aerospace and defense sectors. These losses were a significant contributor to the overall decline in European stock markets.
Hedge Funds Scale Back Leverage
In response to the market volatility, European-focused fundamental stock pickers substantially decreased gross leverage in October, with net leverage hitting its lowest point this year. As investors navigate the uncertain market landscape, it remains to be seen how they will adapt their strategies to mitigate further losses.
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