• Hedge funds engaged in net sales of global equities at the fastest pace since April 2025 through February 19, 2026, driven primarily by short sales in North America and Europe, with financials seeing the heaviest disposals while energy, health care, and staples were net bought, per Goldman Sachs data.
  • This selling occurred amid a broader February 2026 market selloff, marked by sharp declines in software and AI-related stocks (down ~20% since January), synchronized drops across S&P 500, Nasdaq, gold, crypto, and emerging markets, and a VIX spike above 22, fueled by AI investment concerns, leverage unwinds, gamma hedging, and algorithmic contagion.
  • Hedge funds cut gross leverage from five-year highs (~307%) while rotating fastest since 2021 into cyclicals like energy, materials, industrials, and semiconductors (now 9% portfolio weight vs. software's 7%), boosting 2026 returns despite volatility.

Net selling was 1.4 standard deviations below normal, according to people familiar with the matter, contrasting with record bullish buying in Asian equities (e.g., Korea, Taiwan, China) the prior week ending February 13, pushing Asian exposure to highs not seen since 2016. U.S. equities saw modest buying after four weeks of sales, led by tech but with heavy consumer discretionary selling, as hedge funds navigated a volatile landscape where efforts to manage risk have intensified.

Massive $83 billion inflows to U.S. money market funds and bond funds signaled risk-off rotation, with ETF arbitrage transmitting U.S. selling pressure globally. The multi-trillion-dollar wipeout amplified wealth evaporation for retail and institutional investors in tech-heavy portfolios, triggering margin calls across assets like Bitcoin and gold; short sellers gained $24 billion in paper profits from software shorts, according to recent data. Hedge fund performance stayed solid early 2026 via rotations, benefiting limited partners but pressuring software-exposed funds like Fernbridge Capital, which is heavily invested in Salesforce (CRM) and Workday (WDAY), sources say.

Short-term risks persist from elevated short interest in defensives and small-caps, crowded portfolios, and basis trade leverage exceeding $800 billion in short futures. Rotations to semiconductors and industrials may sustain hedge returns in volatile, AI-uncertain markets favoring multi-strategy and equity long-short strategies. Long-term, global equity linkages via ETFs and the VIX suggest amplified contagion without a catalyst like Fed intervention, echoing past dislocations such as the 2020 Treasury basis trade blowups when hedge funds sold $100 billion in Treasuries on margin spikes.

In related developments, Asia equities hit record hedge buys pre-selloff, with Japan's Nikkei and Taiwan up 5%, and Korea's Kospi gaining 8%. Software shorts targeted Microsoft (MSFT), with short interest rising 20%, and Oracle (ORCL), where Kirkoswald puts amounted to roughly $400 million; longs shifted to Boeing (BA), GE Vernova (GEV), and Cleveland-Cliffs (CLF). Attempts to reach spokespeople for Goldman Sachs and major hedge funds for comment were unsuccessful, but industry insiders note that without a deal to stabilize markets, further volatility could force adjustments in portfolio strategies. Corrections: An earlier version misstated the VIX level; it spiked above 22, not 25.