Global hedge funds upped their bullish positions in banks, insurance companies, and other capital markets stocks towards the end of September as they looked to cash in on gains driven by the prospect of prolonged higher interest rates, according to a report by Reuters.

The report cites a client note from Morgan Stanley as confirming that hedge funds began adding to their long positions in August, reaching a 12-month high by 21 September.

Hedge funds started the last week of September with low amounts of North American financial stocks, but ramped up their position by the end of the week, according to Morgan Stanley's prime brokerage business.

European bank stocks ended September with a gain of 2.6% having fallen by as much as 4% at one point last month, while US banks ended the month down 3%.