Hedge funds remain hesitant about buying U.S. stocks at the outset of what is often a dour month for markets, even with a potential U.S. rate cut on the horizon, after becoming net sellers in August.

More traditional investors also sold more U.S. stock than they bought, Lipper data shows.

Although world stocks are near record highs, they could be vulnerable to sharp selloffs, and hedge funds have stayed out of the recent rally out of caution, bank research and investment sources say.

Here’s a look at what’s behind their concern:

STAYING QUIET

Hedge fund leverage, or borrowing, slipped again towards the end of August after a sharp reduction earlier in the month, a Goldman Sachs note tracking data to August 25 shows.

The S&P 500 closed August up almost 2 per cent and remains near recor

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