Hedge funds are adjusting their investment strategies to minimize risks and focus on safety, based on information from Goldman Sachs. This comes ahead of an expected announcement by U.S. President Donald Trump on reciprocal tariffs that has heightened concerns about a potential trade war.

Trump is planning significant trade actions on April 2 to challenge decades-long global trade practices that he believes have disadvantaged American goods and workers. White House officials are considering imposing tariffs of around 20% on most of the $3 trillion worth of goods imported into the U.S. annually.

While the S&P 500 may see a 5% decline in three-month returns due to higher tariffs and reduced earnings estimates, Goldman Sachs predicts a recovery in U.S. markets over the next year, as stated in a note to clients.

Goldman Sachs' prime brokerage information reveals several insights about hedge fund strategies. Hedge funds have decreased their net exposure globally, particularly in Europe, emerging markets, and Asia. They have been reducing positions in emerging markets, holding more short than long positions in Latin America and Asia this year. Additionally, hedge funds are adjusting their portfolios by selling off stocks linked to the economic cycle, such as auto-parts manufacturers and home furnishing stores, due to concerns about the impact of tariffs on the U.S. economy.

In a recent shift, hedge funds have begun selling European auto stocks after buying them earlier in the year, following Trump's announcement of tariffs on imported cars and parts. This move signifies a significant change in investment strategies within the hedge fund industry.