Hedge funds significantly increased their holdings in health care stocks last week, marking the fastest pace of investment in the sector in five months, according to a note from Goldman Sachs’ prime brokerage. The move is driven by expectations that health care, a sector sensitive to borrowing costs, will benefit as central banks globally begin to ease interest rates.
Goldman Sachs’ trading desk reported that health care stocks were among the most net purchased sectors, with hedge funds taking long positions in anticipation of rising equity prices. The note, sent to clients on Friday and reviewed by Reuters, highlights a notable shift in market sentiment toward health care companies, including pharmaceuticals, biotechnology, and health care providers.
The increased activity aligns with broader market trends as consumer spending, a key indicator of U.S. inflation measured by the Federal Reserve’s Personal Consumption Expenditures (PCE) index, showed a modest 0.2% rise in August after a 0.5% increase in July. Certain sectors, including health care services, are closely tied to this inflation measure, according to Jim Reid, a strategist at Deutsche Bank.
“The market is particularly sensitive to categories that contribute to the core PCE deflator, such as health care services, airfares, and portfolio management,” Reid noted in a separate client report.
Last week’s surge in health care stock purchases marked the largest net buying in the sector in the past five months, as hedge funds focused on long bets rather than exiting short positions, the Goldman Sachs note added. Long bets indicate a belief that asset prices will rise, while short bets expect them to fall.
Hedge funds targeted a broad range of companies within the health care sector, including those in pharmaceuticals, biotech, and health care services. However, they largely avoided investments in life sciences tools and services.
Geographically, the buying activity was concentrated in North America and Europe, with hedge funds increasing their health care holdings in five of the last six weeks.
In contrast, U.S. real estate stocks were the most net sold sector last week, with hedge funds making heavy short bets against the sector. Four times as many hedge funds took short positions on real estate compared to those that were long, focusing primarily on real estate investment trusts (REITs), management and development firms, and office space trusts. The short selling in real estate last week was the highest since August 2023.
Goldman Sachs’ report underscores a growing divergence in hedge fund strategies, with investors gravitating toward health care while retreating from U.S. real estate amid ongoing economic shifts.
