NEW YORK, Nov 1 (Reuters) - Global hedge funds are

coming into the U.S. presidential election with more equity

leverage in their portfolios than they had in the beginning of

the year, indicating higher risk appetite, Goldman Sachs' ( GS ) data

showed.

Portfolio managers borrow money from prime brokers to juice

up hedge funds' return, but it can also magnify losses in case a

trade goes wrong.

Hedge funds have increased leverage in portfolios by 20.6%

year to date, a trend that contrasts with positioning in the

previous three U.S. elections cycle.

In 2020, when Republican candidate Donald Trump and

President Joe Biden were on the ticket, hedge funds trimmed

leverage by 3.1% ahead of the election day.

In the two previous election cycles, leverage also went up,

but at a slower pace. In 2016, when Trump and democratic

candidate Hillary Clinton were running, leverage rose by 12.1%,

while in 2012, it increased by 5.6% when the nominees were

Republican Mitt Romney and Democratic Barack Obama.

Hedge funds' risk appetite for equities comes as stocks have

posted a stellar performance so far this year, on the back of a

strong U.S. economy and great optimism about tech.

The benchmark S&P 500 is up over 20% year to date,

while the Nasdaq rose 22%.

Goldman Sachs ( GS ) measures hedge funds' so-called gross

leverage, which adds up portfolios' long and short positions in

equities and shows their overall exposure to the market.

Barclays ( JJCTF ) said in a separate note earlier this week that in

October hedge funds have added back to equities, with

positioning "back to an above-average level," although "it's not

flashing red yet" and leaves room to add more.

Macro and long/short hedge funds were the main strategies

that added more equities to their books in October, the bank

added.