Lead Paragraph hedge funds are rebuilding bearish bets with caution after the fastest short covering in six years forced a painful unwind. Just weeks after getting caught in the most violent short squeeze since the pandemic-era rebound of March 2020, institutional short sellers are quietly rebuilding bearish positions.
Body The whiplash started in March 2026, when hedge funds went on a historic shorting spree. According to Goldman Sachs prime brokerage data, short sales outpaced long buys by a ratio of 7.6 to 1 globally. This was the fastest pace of net selling in 13 years, with 76% of those short sales concentrated in major stock indexes and ETFs.
The unwind was swift and merciless, with hedge funds scrambling to cover their positions. The pace of short covering was the fastest since March 2020, when the post-pandemic rebound caught bearish funds similarly flat-footed. Short exposure in macro products had reached 12% of total gross exposure before the unwind, the highest level since the pandemic itself.
Hedge Funds' New Approach By late April and into early May, the dust had settled enough for hedge funds to start recalibrating. Rather than loading up on broad index shorts like they did in March, funds are reportedly shifting toward market-neutral stances. Others are selectively rebuilding single-stock and relative-value positions, essentially cherry-picking specific companies to bet against rather than wagering on a wholesale market decline.
Multi-strategy hedge funds appear to have navigated the chaos particularly well. Firms including Citadel, Schonfeld, and ExodusPoint reportedly delivered positive returns through the turbulence, benefiting from nimble repositioning across their diversified strategy pods.
Conclusion The episode drew immediate comparisons to March 2020, when hedge funds were caught short heading into the pandemic recovery rally. This time, it was geopolitics rather than central bank policy that flipped the script, but the dynamics were strikingly similar. Hedge funds are rebuilding their bearish bets with caution, adopting a more surgical approach to navigate the complex and volatile markets.
