US hedge funds have shifted their strategies, becoming net sellers of equities linked to the so-called "Trump trade," according to a report by Reuters citing recent data released by the prime brokerage division at Morgan Stanley (MS).

This marks a significant pivot as investors reevaluate the potential economic and market impacts of a second Donald Trump presidency.

After the US presidential election on 5 November, hedge funds initially poured money into stocks expected to benefit from Trump’s policies, such as deregulation and protectionist trade measures, including the financial, industrial, and defence sectors, which were seen as prime beneficiaries of Trump’s approach to governance.

However, Morgan Stanley's data now indicates a reversal, with hedge funds having turned net sellers of US equities, particularly in sectors they had previously favoured.

Stocks in financial and industrial sectors were heavily sold off as hedge funds reassessed the benefits of anticipated deregulatory measures, while equities tied to national security and defence also faced significant selling pressure.

Shares in hotels, restaurants, and other discretionary industries, meanwhile, were shed amid concerns about changing consumer spending patterns, while the healthcare sector also saw notable outflows, possibly tied to uncertainties around policy shifts under a Trump administration.

Some analysts attribute the selloff to profit-taking, as hedge funds cash in on gains made during the post-election rally. US markets surged following the election, buoyed by investor optimism about favourable policies.

Others though, suggest the move reflects deeper concerns about the potential economic and market realities of a second Trump term.