Long-only funds withdraw, hedge funds reduce their positions, and the market shifts to caution

LootboxPhobia · 2026-03-17T18:19:23+00:00

With rising geopolitical tensions and increasing macroeconomic uncertainty, equity investors are reducing risk exposure and increasing cash holdings. Hedge funds have significantly net sold U.S. equities, with a clear defensive rotation. Capital flows favor energy, industrials, and value stocks, while technology stocks stabilize. Volatility control funds remain elevated, and options markets are shifting toward macro trading. No panic signals are currently evident.

LootboxPhobia

2026-03-17 18:19:23

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Investing.com - According to Barclays, as geopolitical tensions and macro uncertainties increase, unsettling the markets, stock investors are reducing risk exposure.

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In a report on Tuesday, analyst Rex Feng wrote that pure long funds are holding more cash, and their equity exposure is currently at its lowest level in nearly a year.

Meanwhile, hedge funds are “significantly net selling U.S. stocks across all market caps,” indicating widespread defensive rotation.

Feng stated that support for the U.S. stock market this year has come from inflows, especially from Europe, but demand has “started to waver in recent weeks,” and if headline risks worsen, it could become a “downside leverage.”

The bank noted that capital flows continue to favor energy, industrials, and value stocks, while demand for tech and dividend-paying stocks has shown signs of stabilization after previous outflows.

Systematic strategies also reflect growing cautious sentiment.

Volatility-controlled funds remain near 80% amid subdued index volatility, but Barclays warned that any rise in inflation-related volatility “will force them to significantly cut positions.”

Commodity trading advisors have shifted to defensive operations, reducing equity exposure to “near flat or short in various regions,” while maintaining long positions in oil amid rising supply risks.

The bank added that risk parity portfolios are also turning defensive, with commodity allocations dropping to “near decade lows” and bond allocations rising to their highest in nearly 10 years.

Options markets show a trend of shifting from single-stock speculation to macro-driven trading.

Feng emphasized that although the S&P skew recently reached a five-year high, this trend is “more driven by selling call options rather than demand for downside protection,” and noted that the open interest ratio of put to call options is at a five-year low, with no signs of panic so far.

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