Hedge Funds Increase $25 Billion in Short Equity Futures Positions
Hedge funds have increased their short equity futures positions by $25 billion, marking the largest rise within a three-week period in over a decade. With short positions in ETFs and individual stocks surging, the total gross leverage has reached a historical high.
Since April, the S&P 500 index has rebounded significantly by 23%, but investors are questioning whether the rebound driven by tariff reductions can be sustained. Consequently, hedge funds are ramping up their bearish bets on the stock market, with their numbers reaching record levels.
In the last three Commitments of Traders (COT) reports, hedge funds added $25 billion in short equity futures exposure, representing the largest increase in three weeks in the past decade.
Wall Street Analysts: Public Skepticism About Short-Term Recovery from Tariff Sanctions
Goldman Sachs analyst Ben Snider noted that the total gross leverage, which includes both long and short positions, has surged to an all-time high. Although the net leverage (long minus short) remains below February levels, the rapid growth of short positions has altered the market landscape. This surge highlights growing skepticism about the market’s resilience in achieving a V-shaped recovery following the tariff sell-off.
Steno Research analyst Oskar Vårdal stated that as economic growth and inflation begin to accelerate again, hedge funds and commodity trading advisors (CTAs) continue to bet against the cycle, doubling down on long-term bonds and short-term risks.
What Are Hedge Funds Targeting for Short Positions?
Hedge funds are targeting ETFs listed on exchanges, as well as individual stocks. Data from Goldman Sachs shows that short positions in ETFs reached $218 billion in the second quarter, while short positions in individual stocks hit $948 billion, with April seeing the largest increase in short sales for U.S. ETFs.
Among U.S.-listed ETFs, the SPDR S&P Regional Banking ETF has seen its short holdings surge by 50 percentage points since mid-February, currently accounting for 96% of its float. The SPDR S&P Biotech ETF has risen 27 points to 111%, and the iShares Russell 2000 ETF has climbed to 33%.
Historically, the ETFs with the highest short positions include the VanEck Gold Miners ETF, with a float percentage of 12%, the First Trust NASDAQ-100 Tech ETF at 4%, and the iShares Core S&P Mid-Cap ETF, which has a short sale amount of $1 billion.
Wall Street’s Increased Interest in Shorting Consumer Staples
Wall Street’s interest in shorting includes sectors such as consumer staples, utilities, and healthcare, currently accounting for one-fifth of the market. The median short holdings in the S&P 500 index represent 2.3% of market capitalization, while short interest in the financial and information technology sectors is below long-term averages.
Which U.S. Stocks Are the Most Targeted for Bearish Bets?
Since the February peak, the U.S. stocks with the largest increase in short positions include Somnigroup (NYSE: SGI), Lucid Group Inc (Nasdaq: LCID), Amer Sports Inc. (NYSE: AS), Medpace Holdings Inc (Nasdaq: MEDP), Moderna (Nasdaq: MRNA), and First Solar Inc. (Nasdaq: FSLR).
This is purely a market observation and not an investment recommendation.
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