NEW YORK/HONG KONG -Global equities long/short hedge funds missed out on most of Wednesday’s massive rally in U.S. stocks, triggered by President Donald Trump’s pause on some tariffs for 90 days, but managed to limit their losses during Thursday’s sell-off.

The funds were up 0.98% on April 9, while the S&P 500 index soared 9.5%, according to numbers compiled by Morgan Stanley sent to clients. U.S. hedge funds posted higher gains, up 2.28%, but still underperformed the index.

These funds turned negative on Thursday as the S&P 500 slumped 3.5% and the MSCI World index fell 1.2% on market jitters of more risks ahead.

Global fundamental long/short funds tracked by Goldman Sachs’ prime brokerage desk were down 0.7% while systematic ones fared better, down 0.2%.

U.S.-focused funds led the losses on the day, returning -1.4%.

In a U-turn, Trump paused tariffs on Wednesday following a day when U.S. Treasuries sold off and showed signs of dislocations as investors feared the new trade policy could drive the world’s largest economy into a recession.

Stocks rallied and Treasury yields pared back some of their gains after the announcement.

The rally caught hedge funds with increased short positions, or bets that stock prices would fall, by surprise.

Hedge funds underwent the largest selling on a net basis in almost 15 years a week ago, while also turning the most bearish since 2011, Goldman said.

REDUCING LEVERAGE

With a reduced portfolio of long positions – betting prices would go up -, hedge funds did not take much advantage of the rally, but also managed to avoid oversized losses in Thursday’s plunge.

“Some of the activity (on Wednesday) was down to hedge funds covering their shorts after Trump’s 90-day pause announcement,” Jon Caplis, CEO of hedge fund research firm PivotalPath, said.

According to Goldman, hedge funds bought U.S. equities at the largest notional value in more than a decade on Wednesday, due to short covering in macro products.

Still, equity hedge funds are outperforming the S&P in 2025. Year-to-date through April 10, global fundamental long/short funds were down 4.3%, Goldman said. The S&P 500 dropped 10.4% in the same period.

Morgan Stanley’s numbers also showed that managers continued to cut leverage in their portfolios. Amid uncertainty around tariffs, hedge fund managers have slashed positions to reduce risk.

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