Hedge funds have been using the recent rally in US equities to reduce risk and scale back positioning, according to a report by Bloomberg citing a client not from traders on the prime brokerage desk at Goldman Sachs Group Inc.
As the S&P 500 surged to record highs last week, the Goldman team led by Vincent Lin reported that hedge funds collectively reduced the size of both long and short equity positions at the fastest pace since September last year.
In the note, Goldman said US long-short gross leverage declined by 4.6 percentage points over the week, marking the most significant notional de-grossing in seven months. The move was primarily driven by risk reduction in single stocks as managers sought to unwind exposure during the market rebound.
The recent rally has been one of the strongest on record from a technical perspective, with the S&P 500 shifting from oversold conditions, based on its 14-day relative strength index, to overbought territory in just 12 trading sessions.
Improving sentiment has been supported in part by a cooling of geopolitical concerns, including stalled US-Iran negotiations, and a renewed focus on earnings momentum. However, positioning across investor groups has remained mixed, with systematic strategies such as commodity trading advisers (CTAs) continuing to add exposure while discretionary managers have shown more caution.
According to Goldman’s analysis, the reduction in exposure last week was broad-based, with nine of 11 sectors seeing net selling activity. Consumer discretionary stocks saw the seventh consecutive week of net sales, with long positions driving most of the activity and marking the fastest pace of selling in around 10 weeks.
Information technology was also a key area of de-risking, recording its largest weekly gross exposure reduction since July 2024. The decline represented one of the most significant positioning cuts in the past five years, driven by long liquidation outpacing short covering.
Despite the recent pullback, overall exposure to technology remains elevated. Gross allocation to the sector stands at 20.6% of total US equity market value, placing it in the 92nd percentile over the past year and the 98th percentile over a five-year horizon, according to Goldman Sachs data.
