Hedge funds flee banks, lending-related stocks

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FILE PHOTO: Silicon Valley Bank location in San Francisco

By Carolina Mandl

NEW YORK (Reuters) - Global hedge funds cut their exposure to U.S. banking stocks to a near 10-year record low and fled lending-sensitive shares amid the banking turmoil that began earlier this month, Goldman Sachs said in its prime services weekly report.

An indicator of how bearish or bullish hedge funds are positioned showed that investors became more pessimistic. Their long positions in banking divided by short positions ended the period March 17-23 at 1.28, near 10-year lows. In the beginning of 2023, it was at 1.52, Goldman said.

A low ratio indicates a more bearish outlook.

Fears of a credit crush in a potential recession also led hedge funds to scale down their exposure to firms exposed to credit to the lowest level in nearly five years, the report said, based on Goldman Sachs clients' books.

"Financials were net sold in eight of the past nine weeks and this week saw the largest notional net selling in more than a year, driven by short and long sales," the report said.

The bank said that overall its clients' books were modestly net sold on the week.

Following the collapse of U.S. lenders Silicon Valley Bank and Signature Bank and the Swiss government's orchestrated takeover of troubled Credit Suisse earlier this month, global regulators and central banks have taken measures in an attempt to contain jittery markets.

Despite their bearish views of financials, hedge funds scooped up stocks in healthcare and technology, media and telecom.

(Reporting by Carolina Mandl in New York; Editing by Mark Porter)