Hedge Funds Make Financials Most Shorted Sector of 2025, Goldman Data Shows

Goldman Sachs' prime brokerage data shows global hedge funds aggressively sold shares of banks, insurance companies, fintech firms, and trading companies in the week to March 13, pushing financials to the top of the most-sold sector rankings year-to-date, according to a client note seen by Reuters.

The selling was broad and international. Hedge funds shorted global financial stocks across the board, with the sector net sold internationally, the Goldman note said. The move extends a pattern of sustained bearish positioning: Goldman's data, which stretches back to 2016, shows notional short-selling volume at the individual stock level reached a record high in the same period, with hedge funds acting as net sellers of U.S. stocks for four consecutive weeks. The selling intensity reached its highest point since what Goldman described as "Freedom Day" in early April last year.

The reasons behind the financial sector targeting may be less about conviction on individual banks and more about macro hedging, according to Bruno Schneller, managing director at Erlen Capital Management. "When a large institution like JPM (JPMorgan) starts marking deals lower, markets pay attention because it raises the possibility that others may eventually have to follow," Schneller said. "If investors worry the marks across the system could move, the easiest way to hedge that risk is through liquid proxies like banks, insurers and financial indices." Schneller added that the short positions might also give speculators a way to recession-proof their portfolios.

The financial sector's rough week follows a broader stretch of hedge fund selling across U.S. equities, with technology taking the heaviest punishment in earlier weeks. During the period from January 30 to February 5, short selling ran at twice the scale of long buying, per Goldman's prime brokerage team. The information technology sector recorded the second-largest net outflow of the past five years in that episode, with software accounting for roughly 75% of the IT sector's net selling. Hedge funds' net exposure to software stocks dropped to 2.6%, with the long-short ratio falling to 1.3, both record lows by Goldman's measure. The combined market capitalization of 164 stocks across software, financial services, and asset management fell by $611 billion during that stretch, driven in part by anxiety over Anthropic's release of new automation tools and what they signal for existing business models.

The bearish positioning extended to equity ETFs as well. Goldman's prime brokerage data showed hedge funds increased short positions in equity exchange-traded funds by 8.3% in the week through March 6, a pace exceeded only once in the prior five years, according to reporting by Bloomberg's Natalia Kniazhevich. Escalating conflict in the Middle East and the inflation implications of rising oil prices were cited as additional pressure on appetite for U.S. equities.

Taken together, the data describes a hedge fund community that has been systematically building downside exposure across multiple sectors for months, with financials emerging as the most recent and concentrated target.