Hedge funds are turning more bullish on financial stocks, with banks, insurers, and consumer finance firms attracting the fastest pace of buying in three months, according to Goldman Sachs.
The bank’s latest research note said hedge funds increased positions in financials last week amid expectations that higher levels of dealmaking and a potential easing of regulations would bolster sector profitability.
An index of European banks has already risen more than 40% this year, while U.S. banks have gained just over 20%.
The note said hedge funds showed no clear regional preference, though North America and Europe accounted for the majority of long positions.
After a period of reduced activity in August, hedge funds lifted gross leverage - a measure of overall trading exposure - by the largest amount in eight months last week.
Financials were the second most bought sector tracked by Goldman’s prime brokerage unit, with technology stocks following close behind.
While banks typically benefit from higher interest rates, Goldman said that the prospect of lower rates had already been priced into valuations.
The Federal Reserve cut interest rates last week for the first time since December and signalled further reductions at its October and December meetings as the US labour market shows signs of cooling.
