Global hedge funds have been reallocating their portfolios this year, adding European stocks while reducing exposure to North American equities, according to proprietary data from Morgan Stanley. The move comes amidst ongoing debates about the high valuation of U.S. stocks, with the STOXX 600 in Europe rising 6.5% this year, although still lagging behind the 9.6% increase in the S&P 500. Hedge funds have significantly increased their holdings in European equities, with portfolio exposure to the continent growing from below 17% to roughly 19%, driven by acquisitions of long positions in sectors like information technology services, industrial conglomerates, semi-conductors, electrical equipment, and life science tools and services.
Morgan Stanley’s analysis indicates that hedge funds have been actively buying European equities in nearly 70% of trading sessions since mid-January when the Euro STOXX 600 began its rally. While European equities trade at lower valuations compared to their U.S. counterparts, many investors are betting on further gains in European markets. The shift in allocation reflects a broader sentiment among market participants who believe that U.S. stocks are trading at premium valuations, prompting a reassessment of investment strategies by hedge funds globally.