Hedge funds missed out on Monday's post-French election surge in banking sector stocks after exiting their positions betting on a rise in sector prices last week at the fastest rate seen since May 2021, according to report by Reuters.

The report cites a Goldman Sachs client note as revealing that long positions in banking and other financial stocks were abandoned at the highest pace in five years during the week leading up to 27 June, particularly in Europe.

European bank stocks surged by as much as 1.9% on Monday after Marine Le Pen's far-right National Rally party and its allies gained a smaller lead than expected in Sunday's first round, suggesting a potential hung parliament that could hinder the party's agenda.

In the lead-up to the election, French assets had been under pressure due to concerns that a majority win by either the far right or far left could lead to increased spending and destabilise the government's finances.

Shares in France's three largest lenders, BNP Paribas, Credit Agricole and Societe Generale, rose between 4.1% and 4.7% on Monday. Additionally, the cost of insuring their bonds against default dropped to its lowest level in two weeks.

Financial stocks were sold across all regions, except for developing markets in Asia, in the week leading up to 27 June. European stocks led the sales in notional terms, according to the Goldman Sachs note.

A modest number of hedge funds purchased financials to exit short positions, Goldman Sachs noted, without providing specific numbers.

Hedge funds also sold out of sectors including capital markets companies, banks, consumer finance, and insurance, while modest buying was observed in trading companies and those that package mortgages for public trading.