Hedge funds entered the second quarter of 2026 by significantly increasing exposure to the theme of artificial intelligence. This is what emerges from Goldman Sachs’ Hedge Fund Trend Monitor, which analyzes the portfolios of 1,059 funds with gross equity positions of 4,600 billion dollars: 3,100 billion long (buying) and 1,500 billion short (selling).
Rotation on AI and sectors
In the quarter, net tilt (exposure) to the Information Technology sector increased by 853 basis points, the largest quarterly increase ever recorded for the sector. The funds also added exposure to Communication Services and Financials, reducing it to almost all other sectors. Within long portfolios, the weight on Semiconductors reached a record level of 10%, while that on Software fell to 6%, the lowest since 2019. Exposure to the Momentum factor has been in the 90th percentile since 2001.
About half of Rising Starsthe stocks with the greatest increase in popularity among hedge funds, can be traced back to the AI theme, led by Sandisk, Lam Research Corp and Applied Materials. Of the 12 new entries in the Hedge Fund VIP list – which brings together the 50 most popular long positions – seven belong to the AI infrastructure sector. In addition to TMT, the only sector to have seen an increase in net exposure is the financial sector, with Wells Fargo among the Rising Stars and S&P Global among the new entries on the VIP list.
Performance and leverage
U.S. long/short equity hedge funds returned 7% year-to-date through May 21, according to Goldman Sachs Prime Services estimates. The Hedge Fund VIP basket has returned 13% year to date, versus 7% for the equal-weight S&P 500 and 27% for the more concentrated short basket. The most popular long positions in Information Technology have returned 62% year to date, outperforming both the sector and the sector’s most concentrated shorts by more than 30 percentage points.
The funds’ net exposure has risen to a 12-month high, while gross leverage is in the 94th percentile compared to the last five years.
Hedge Fund VIP and mega-cap tech
Amazon confirms itself at the top of the VIP list for the tenth consecutive quarter. Followed by Nvidia, Google, Microsoft and META, and then Taiwan Semiconductor Manufacturing, Apple, Broadcom and Micron Technoloy. The basket has outperformed the S&P 500 in 59% of quarters since 2001, with an average quarterly excess return of 53 basis points. The new constituents are Bloom Energy, Coherent Corp., Centuri Holdings, Hut 8 Corp., Lam Research Corp., Marvell Technology, MasTec, Inc., Revolution Medicines, S&P Global, UnitedHealth Group and Vistra Corp. Among the tech mega-caps, the funds mainly bought META and sold Microsoft, which is among the Falling Stars; essentially neutral flows on Nvidia.
ETFs and defensive sectors
The share of ETFs in hedge funds’ long portfolios rose to 4.9%, the highest since the global financial crisis. S&P 500 ETFs (SPY and IVV) represent approximately 50% of the funds’ total long ETF positions. Short interest is particularly high historically in the defensive sectors: Health Care (30-year high), Utilities and Consumer Staples, with CLX and CPB among the stocks that have recorded the greatest recent increases.
