Hedge funds saw returns of 5.35% in May, outpacing the MSCI total return index's 4.55% gain. This performance was driven by a rally in U.S. tech stocks, with hedge funds increasing purchases at the fastest pace since June 2025 and reaching a five-year high in leverage.
Hedge funds experienced a strong performance in May, with stock-picking strategies leading the gains. According to a note from Goldman Sachs, these funds returned 5.35% in May, surpassing the MSCI total return index, which posted a 4.55% gain. The rally was largely driven by rising equities, particularly in the U.S. tech sector. Hedge funds increased their buying of stocks at the fastest pace observed since June 2025, focusing on information technology, consumer discretionary, financials, and industrials. Energy, communications services, and consumer staples were the only sectors that saw net selling. The note also indicated that crowded long trading positions contributed to the gains, as increased investor buying pushed prices higher. Systematic stock trading hedge funds returned 0.84% in May. Furthermore, total borrowing by hedge funds increased significantly, reaching a five-year high in leverage. Some of the largest multi-strategy hedge funds, such as Schonfeld and Millennium, reported returns of 2.6% and 2.4% respectively for the month.
The strong performance and increased leverage indicate heightened risk appetite among hedge funds, potentially amplifying market movements and posing risks if market conditions reverse.