Key Takeaways
- • Hedge fund short positioning is approaching a five-year high, according to an October report from Goldman Sachs' prime brokerage division, as managers seek downside protection amid heightened market volatility.
- • BlackRock's momentum ETF gained more than 55% from the beginning of 2025 through Q2 2026 but has declined more than 7% since July as rising interest rates and AI valuation concerns weighed on leading stocks.
- • Bayberry Capital founder Angela Aldrich is reportedly launching a dedicated short-only strategy alongside the firm's existing long-short equity fund.
- • Managers are shifting toward company-specific fundamental stock selection, with Maverick Capital's David Tykocinski outlining a bullish case for Intel based on its semiconductor manufacturing rather than the broader AI sector.
- • JPMorgan's John Schlegel noted hedge funds have historically generated stronger alpha during market downturns, even when overall portfolio returns are negative.
Summary
Hedge funds are increasing short positions and moving toward fundamental stock selection as the technology-led momentum trade loses momentum, forcing managers to identify individual winners and losers rather than rely on broad market gains, according to a report by Business Insider. An October report from Goldman Sachs' prime brokerage division found that hedge fund short positioning was approaching a five-year high, reflecting growing demand for downside protection amid heightened market volatility.
The shift follows a sharp reversal in momentum strategies, which generated substantial gains through 2025 and the first half of 2026 as technology and AI-related stocks rallied. BlackRock's momentum ETF gained more than 55% from the beginning of 2025 through the second quarter of 2026, but has declined more than 7% since July as rising interest rates and concerns over AI valuations weighed on previously strong performers.
Managers are increasingly concentrating on company-specific opportunities rather than macroeconomic themes. Bayberry Capital founder Angela Aldrich is reportedly launching a dedicated short-only strategy alongside the firm's existing long-short equity fund, highlighting renewed focus on identifying overvalued companies. Maverick Capital co-chief investment officer David Tykocinski recently outlined a bullish investment case for Intel based on its semiconductor manufacturing capabilities rather than expectations for the wider AI sector.
The changing environment is increasing pressure on hedge funds to demonstrate alpha independent of market direction. John Schlegel, JPMorgan's head of positioning intelligence, noted that hedge funds have historically generated stronger alpha during market downturns, even when overall portfolio returns remain negative. With momentum trades losing effectiveness and performance dispersion widening, managers are relying more on fundamental research, short selling and differentiated strategies to protect capital and deliver returns.
The shift follows a sharp reversal in momentum strategies, which generated substantial gains through 2025 and the first half of 2026 as technology and AI-related stocks rallied. BlackRock's momentum ETF gained more than 55% from the beginning of 2025 through the second quarter of 2026, but has declined more than 7% since July as rising interest rates and concerns over AI valuations weighed on previously strong performers.
Managers are increasingly concentrating on company-specific opportunities rather than macroeconomic themes. Bayberry Capital founder Angela Aldrich is reportedly launching a dedicated short-only strategy alongside the firm's existing long-short equity fund, highlighting renewed focus on identifying overvalued companies. Maverick Capital co-chief investment officer David Tykocinski recently outlined a bullish investment case for Intel based on its semiconductor manufacturing capabilities rather than expectations for the wider AI sector.
The changing environment is increasing pressure on hedge funds to demonstrate alpha independent of market direction. John Schlegel, JPMorgan's head of positioning intelligence, noted that hedge funds have historically generated stronger alpha during market downturns, even when overall portfolio returns remain negative. With momentum trades losing effectiveness and performance dispersion widening, managers are relying more on fundamental research, short selling and differentiated strategies to protect capital and deliver returns.
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