By Carolina Mandl
NEW YORK (Reuters) -Hedge funds have been buying consumer staple stocks in Europe in October while dumping the sector in the U.S., driven by concerns about the impact of weight-loss drugs on food habits, Goldman Sachs showed in two different reports about trading flows.
The bank said investors have added consumer staples to portfolios in Europe as part of a more defensive strategy amid the Hamas-Israel war and continued uncertainty about future economic growth.
"Consumer staples (are) among the most net bought sectors in October so far, while discretionary names are being net sold," the bank added. Consumer discretionary products are more prone to suffer in economic downturns, as they are non-essential.
In the U.S., however, investors have sold and shorted consumer staples. "Consumer staples is among the most net sold sectors in October, driven by short sales outpacing long buys," the bank said in a different note earlier this week, citing increased concerns about the class of drugs known as GLP-1 used in weight-loss and diabetes treatments.
For every two U.S. consumer staples stocks that hedge funds have shorted, they have bought one, Goldman Sachs said.
U.S. companies ranging from supermarkets to beer have been under pressure on concerns about the impact of weight-loss drugs like Ozempic, Wegovy and Mounjaro. Prescriptions for the drugs are soaring.
Wegovy has been a phenomenal success in the United States and is now being rolled out in some European markets including Norway, Denmark and Germany.
Shares in the U.S. consumer staples sector are down roughly 8% this year, which some investors see as an overreaction to the new weight-loss drugs.
"Consumer staples has been ignored and beaten up," said Bryant VanCronkhite, equities senior portfolio manager at Allspring Global Investments LLC. "The market has grabbed on to this and pushed down stock prices as though everyone in the world is going to be taking these drugs and that they're going to work forever."
PORTFOLIO ROTATION
European hedge funds have bought defensive stocks in October, while selling cyclicals, according to Goldman Sachs.
"From the start of October, we have observed a sharp rotation from cyclicals into defensives, arguably as a reaction to the macroeconomic/geopolitical environment," the prime services strategies team wrote.
Goldman Sachs said that, besides consumer staples, healthcare and utilities are part of the defensive stocks group, while cyclicals incorporate energy, materials, industrials, financials and real estate.
Since the beginning of October, European hedge funds' allocation to cyclicals has declined to below 2% from 7%, a graphic showed, and defensive stocks now account for almost 7% of their market value versus 6% earlier.