Hedge funds reduce leverage, sector rotation drives portfolio adjustments

LootboxPhobia · 2026-02-23T19:55:26+00:00

Goldman Sachs strategists point out that hedge funds have reduced their positions and quickly adjusted their portfolios, focusing especially on defensive stocks and small-cap stocks, while increasing investments in energy, materials, and industrial sectors. Long positions in semiconductors have for the first time surpassed software stocks, with Boeing and GE Vernova becoming popular stocks.

LootboxPhobia

2026-02-23 19:55:26

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Investing.com – Goldman Sachs strategists say hedge funds have reduced total leverage from record levels and are rotating their portfolio positions at the fastest pace since 2021.

The team led by Ben Snider reports that total leverage remains near historical highs, while median short interest in S&P 500 components is approaching its highest levels in recent years. Short positions are especially concentrated in defensive stocks and small-cap companies.

Strategists note that, compared to historical trends, the concentration within hedge fund portfolios and the crowding among these portfolios remain elevated.

The report indicates that this year’s rotation into cyclical stocks and the shift from software stocks to semiconductors have supported hedge fund returns.

Hedge funds increased overweight positions in energy, materials, and industrials last quarter. These sectors are the best performers so far this year.

Boeing and GE Vernova joined Goldman Sachs’ hedge fund VIP list this quarter, becoming the most popular long positions. Cleveland-Cliffs, Eaton, ITT, and Sealed Air are identified as rising star stocks, representing the fastest-growing stocks in hedge fund popularity.

Hedge funds increased their semiconductor holdings in long portfolios to 9%, surpassing the 7% weight in software stocks for the first time since 2018. Applied Materials, Micron Technology, Nvidia, and Teradyne are categorized as new star stocks in the semiconductor sector.

Meanwhile, Salesforce and Docusign are listed as stocks with declining popularity.

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