Hedge funds betting against staples going into Q3

Hedge funds are betting against staples going into the third quarter, a possible sign they expect solid enough economic growth to avoid a rotation into defensives. 

Even as they continue to take profits in tech, hedge funds are shorting Consumer Staples (NYSEARCA:XLP) names, according to Goldman Sachs' Prime Services desk.

"Consumer Staples was the second-most net sold US sector on the week (behind Info Tech (XLK)), driven entirely by short sales," Goldman said. "This week’s net selling was the largest since November ’23 and ranks in the 97th percentile vs. the past 5 years."

"All subsectors (sans Personal Care Products) were net sold on the week, led in notional terms by Beverages, Food Products, and Staples Distribution & Retail," they added. "Staples now makes up 1.25% of the Prime book’s Overall US Net Exposure, which is in the 23rd percentile vs. the past year and in the 60th percentile vs the past five years."

"The Prime book is underweight Staples vs. the S&P 500 Index (SPY) (IVV) (VOO) by -4.5% (57th percentile 1-year and 82nd percentile 5-year)," Goldman said.

XLP is up more than 6% year to date, trailing the broader market by more than 7 percentage points.

Walmart (WMT), Costco (COST), Colgate-Palmolive (CL), Kimberly-Clark (KMB) and Altria (MO) were the top-performing constituents of XLP in the first half of the year. Walgreens (WBA), Estes Lauder (EL), Brown Forman (BF.B), Lamb Weston (LW) and Molson Coors (TAP) were the worst performers.

Other staples ETFs include (RSPS), (FSTA), (VDC), (PSCC), (PSL), (FXG), (IYK) and (KXI).