Hedge fund managers err on the side of caution due to their fear of more stock market declines

According to a report by The Financial Times, many US hedge fund managers appear to fear that additional market drops are imminent and as a result, they are taking a cautious approach to stock trading.

By the middle of this month, the net exposure of US funds had dropped to its lowest level since 2010, according to a note from Morgan Stanley to clients that were included in the report. Their colleagues in Europe and Asia, however, have cut back on their stock market investments to the smallest level seen in the preceding year.

Despite the fact that the S&P 500 (-18%) and the Stoxx 600 (-15%) have already seen significant declines this year, the negative positions have been embraced.

The year 2022 has been difficult for equity hedge funds so far, according to figures from Morgan Stanley, with US long-short equity funds down 14.1% on average and European funds down 8.3%.