Hedge funds are rebuilding equity exposure after sharply reducing risk in late July, with investors once again adding to long positions as the latest market rally gains momentum, according to a report by the Wall Street Journal citing a note from the prime brokerage division at Goldman Sachs.
Global equities were net purchased by hedge funds for a second consecutive week in the five trading sessions through last Thursday, according to Goldman Sachs.
Gross trading activity also accelerated, reaching its highest pace in seven weeks. Long purchases exceeded short sales by 1.4 to one, signalling a renewed willingness among hedge funds to take directional risk.
The shift marks a significant reversal from late July, when managers moved defensively as a selloff in artificial intelligence-related stocks unsettled markets.
Hedge funds responded by cutting equity exposure, selling long positions and closing short trades. The turbulence contributed to a difficult month for the industry, with the broad PivotalPath hedge fund index declining 0.8% in July.
Goldman’s latest data suggest that the defensive positioning may have run its course, at least for now.
Hedge funds were net buyers of individual stocks for the first time in about a month, rebuilding positions as market sentiment improved.
Materials stocks were the standout sector, attracting the largest net buying activity. The move was driven particularly by short covering, with hedge funds closing bearish positions in the sector at the fastest pace in almost two years.
The renewed demand indicates that some managers are not simply adding market exposure but are actively reversing trades that had benefited from the recent risk-off environment.
The shift also highlights how quickly hedge fund positioning can change when market volatility eases. Managers that reduced exposure during the AI-driven selloff are now putting capital back to work, potentially helping to reinforce the broader equity rebound.
For now, the data point to a renewed willingness among hedge funds to take risk. Whether the latest buying marks the start of a sustained increase in equity exposure will depend on how markets absorb the next round of corporate earnings, economic data and developments in the AI trade.
