Nomura Quant Insights

Research evidence excerpt

Nomura Quant Insights

to hike rates, hedge funds' risk appetite could hit a ceiling. Estimated

hedge fund leverage has increased rapidly since the resumption of rate cuts in September Note:

2025, and is now at a post-pandemic high (Figure5). A shift to rate hikes could induce

Unless expressly stated otherwise,hedge funds to de-gross their books as in 2022, potentially intensifying corrective pressure

mentions of the exposure oron the momentum factor (Figure6). Last week, Bloomberg reported that major global

positioning of various investorbanks are raising the cost of financing for hedge funds, with sell-side firms specifically

classes are estimates derived fromincreasing costs for trades related to crowded semiconductor names. While the causal

Nomura’s model, and are not actual,relationship is different from that described above, both point to the risk that hedge funds

measured figures.could reduce their leverage.

This report was authored by anMomentum factor performance may recover if FOMC meeting is a non-event / Tech

stock skew returns to 5% threshold / Individual investors leaning toward employee of a Nomura affiliate and

momentum / South Korean margin trading capacity reviewed and published by Nomura

If the FOMC meeting passes without surprises, the market could be driven by momentum Securities.

again. After last week's market correction, the tech skew has now returned to the 5%

threshold that points to reversal (Figure7, Figure8). Hedge funds have already greatly

increased their leverage, which should limit their scope for additional overweighting of tech

stocks. At the same time, momentum appetite among individual investors remains strong.

The most recent Nomura Individual Investor Survey shows growing interest in AI-related