Hedge Fund Portfolios—Big Pullback in Risk Heading into Q2, Part of Tailwind

Research evidence excerpt

Hedge Fund Portfolios—Big Pullback in Risk Heading into Q2, Part of Tailwind

USA | Equity Strategy EquityJuneResearch15, 2026

STRATEGY NOTEHedge Fund Portfolios—Big Pullback in Risk

Heading into Q2, Part of Tailwind

Based on data as 3/31, we think some of the big lift to equities in Q2 was Hedge Hedge Funds significantly reduced equity

exposure...

Funds adding risk after lowering in March to below avg. After maintaining strong 350

Long exposure by Hedge Funds

300risk exposure, these investors pulled back and with better earnings, must have

increased equities last two months. Interesting, these investors also lowered 250200

150Small Cap weight and OW to size. SW16 weight moved to modest UW. Big drop

in weight in Health Care, less exposure to Comm Services, more to Tech. 100

.

Source: FactSet; MSCI; Jefferies

Hedge Funds lowered Long exposure back below the long-term average. We think some of the

Q2 move by equities was due to Hedge Funds adding exposure after they lowered it in March. As ...And lowered weight to Small to 7.3%, an OW

of 2.8%

of 3/31, long exposure fell to ~172% from 295%, back below its long-term average. The short book Hedge Fund Ownership of Small Caps

15.0slipped back to ~72%.

12.0

More important to us is the fact that these investors lowered their weight and OW to Small Caps. 9.06.0

We had been seeing these investors move down cap, as trading volume in some of these names 3.00.0

have really picked up. With the overall equity exposure falling, Small became 7.3% of the portfolio, -3.0-6.0

an OW of 2.8% vs. 7.6% one-month prior. We also saw the large OW to Mid-Growth diminish and .Source:Dec-23 FactSet;Mar-24 Jun-24MSCI;Sep-24JefferiesDec-24 Mar-25 Jun-25 Sep-25 Dec-25 Mar-26

the substantial UW to Large Value narrow significantly to <700bps.