The turbulent swings in AI-related trading are fundamentally reshaping how hedge funds position their portfolios. After a second quarter marked by intense AI enthusiasm followed by a sharp July pullback, funds are accelerating diversification efforts, shifting capital away from crowded AI trades toward healthcare, financial, and energy sectors.

According to the latest hedge fund trend monitor from Goldman Sachs, net overweight positions in healthcare, financials, and energy are sitting at or near decade highs as of early Q3 2026. The financial sector's net overweight has climbed to levels not seen since before the 2008 financial crisis, while energy's net overweight has reached its highest point since 2015.

Meanwhile, the momentum reversal in AI trades during July triggered one of the most violent deleveraging waves among hedge funds in nearly a decade. The VIP holdings basket underperformed the equal-weighted S&P 500 by 11 percentage points in a single month, marking the worst relative performance in over 20 years of history for that basket.

This repositioning carries meaningful market signals for investors. Historical data indicates that hedge fund "rising stars"—stocks receiving the most new positions—tend to outperform their sector peers in subsequent quarters, while heavily sold-off "falling stars" typically lag. The systematic accumulation across healthcare, financials, and energy could signal that relative return opportunities are building in these areas.

July Marks a Turning Point as AI Volatility Hits Hedge Funds

The report is based on analysis of 991 hedge funds holding a combined $5.4 trillion in gross equity exposure—$3.4 trillion long and $2.0 trillion short.

Year-to-date performance for hedge funds has been tightly correlated with the ebb and flow of AI trades. Goldman Sachs Prime Services estimates that US equity long-short hedge funds delivered a cumulative 10% return from the start of the year through August 19. The second quarter was strong, particularly June, but July saw a sharp deterioration as AI momentum reversed.

The July drawdown was especially severe. The Goldman Sachs VIP basket (GSTHHVIP) underperformed the equal-weighted S&P 500 by 11 percentage points from end-June to end-July—the worst single-month relative showing in the basket's 20-plus year history, even exceeding the -9 percentage points recorded during the October 2008 financial crisis. At the same time, both gross and net leverage retreated significantly from their Q2 historical peaks, though they remain elevated relative to longer-term averages.

Notably, the VIP basket's year-to-date excess return shows a 0.9 correlation with the Goldman Sachs AI basket, meaning any shift in AI trading sentiment flows directly into hedge fund performance.

Q2 Still Showed Heavy AI Commitment, but Internal Divergence Was Emerging

Despite maintaining deep AI exposure overall in Q2, hedge funds displayed clear structural divergence beneath the surface. Portfolio turnover among hedge funds rose to its highest level since 2021 in Q2, with turnover within the information technology sector hitting an 11-year high—evidence that fund managers were aggressively restructuring their AI-themed positions.

In terms of specific holdings changes, hedge funds trimmed positions in most large-cap tech names during Q2, with Amazon and Microsoft as exceptions—both received net buying. Meta Platforms landed on the "falling stars" list with one of the largest declines in the number of funds holding it. Positions in Nvidia remained relatively stable, but AI-related names including several semiconductor stocks experienced significant net selling, even as those stocks were still trading in uptrends during the period.

Among AI-related equities, the top net additions by hedge funds included Advanced Energy Industries, Viavi Solutions, and Digital Realty Trust, while the largest net reductions hit Applied Materials, Micron Technology, and Lam Research—semiconductor and equipment names.

Healthcare, Financials, Energy: Decade-Level Accumulation Across Three Sectors

Sector-level reallocation stands as the most significant signal in this report.

Healthcare has become the largest net exposure sector for hedge funds, representing 19% of total net exposure with an overweight of 962 basis points relative to the Russell 3000 index—near decade highs. The accumulation was broad-based, with biotechnology as the most-bought sub-industry and managed care as the sole exception. Axsome Therapeutics joined the quarter's "rising stars" list, while Thermo Fisher Scientific was added to the VIP holdings. Within healthcare-focused funds, the most popular positions concentrated in biotech, with Boston Scientific and UnitedHealth Group as the notable non-biotech exceptions.

The financial sector's net overweight has climbed to its highest level since before the financial crisis, with balanced accumulation across sub-industries. Among financial specialists, regional banks were the most concentrated positioning, with Capital One Financial among the most popular holdings and a VIP list member. CME Group and Intercontinental Exchange saw some of the largest net increases in fund ownership last quarter.

Energy's net overweight has risen to its highest since 2015, also reflecting broad-based accumulation across sub-industries.

By contrast, while information technology remains the largest weight in long portfolios at 25%, net exposure stands at just 15%—a record "underweight" relative to the sector's 33% weight in the Russell 3000. However, this largely reflects the sector's outsized benchmark representation rather than active avoidance by hedge funds.

Leverage and Shorts: Risk Exposure Still Elevated Historically

Despite AI trade volatility, large-cap tech names remain the most popular long holdings among hedge funds. Amazon topped the VIP list for the 11th consecutive quarter, with large-cap tech occupying nine of the top ten slots. Historically, the VIP basket has outperformed the S&P 500 in 58% of quarters since 2001, with an average quarterly excess return of 50 basis points. However, year-to-date, the basket has returned 12.5%, slightly trailing the S&P 500's 13.4%, with July's AI pullback as the primary drag.

Although down significantly from their peaks, overall hedge fund risk exposure remains elevated. Goldman Sachs Prime Services data shows fundamental long-short funds' gross leverage at the 73rd percentile of its five-year range and net leverage at the 38th percentile.

On the short side, leveraged funds hold near-record net short positions in Nasdaq 100 index futures, with short interest up 35% since mid-June. Short interest on the median S&P 500 constituent has eased modestly from late-June highs but remains at its highest level in over 15 years.

In ETF holdings, the ETF share of hedge fund long portfolios has risen to 5.6%—the highest since the financial crisis. Notably, $31 billion in ETF shorts represent 62% of total hedge fund ETF exposure, suggesting funds are using ETFs primarily as hedging instruments rather than for directional bets.