Institutional
UBS says hedge funds are close to done unwinding AI and semiconductor positions and could start buying back in before month-end
Hedge funds cut long exposure to momentum and semiconductor names by about 5% of gross market value, among the largest reductions on record, before UBS's momentum indicator swung from a 3.5% decline to a 2.5% gain in two hours on Friday; UBS expects the unwind to bottom by end of July.
UBS's hedge fund equity derivatives desk is telling clients the de-risking cycle in momentum and semiconductor stocks is close to finished, and that funds are positioned to start rebuilding AI-related exposure gradually rather than all at once. The desk's own data shows hedge funds cut long exposure to momentum and semiconductor names by roughly 5% of gross market value, which UBS describes as one of the largest such reductions on record, pulling net positioning in semiconductor and software stocks back to levels last seen in April.
The reversal signal UBS is pointing to is specific and recent: its momentum indicator swung from a 3.5% decline to a 2.5% gain within two hours on Friday, and UBS's software basket, which includes Sandisk, Broadcom, Oracle, KKR, Datadog and Microsoft, has gained roughly 20% since the end of June. Asian semiconductor stocks moved similarly, with the regional chipmaker gauge rising more than 3%. Michael Romano, UBS's head of hedge fund equity derivative sales, is quoted advising clients to scale into positions gradually rather than re-enter in a single move, framing improving AI fundamentals as a signal to buy the dip, and expects the unwind to bottom by the end of July.
This is a sell-side house view sitting directly against several other threads covered on this site over the past week, Goldman's data showing hedge funds cutting US tech exposure at the fastest pace on record, South Korea's leverage-driven circuit breakers, and retail leveraged funds facing liquidation in the same AI-selloff. UBS's read is that the worst of the de-risking is behind, not ahead, of where those other data points leave off.
It's worth being plain about what this call rests on: one desk's positioning data and a single two-hour intraday reversal on one Friday, extrapolated into a month-end bottom call. Advising clients to buy the dip is also, structurally, the kind of thing a derivatives sales desk says to generate flow regardless of where the market actually goes next, and the same week's other coverage of crowded trades, alpha decay and margin-call-driven unwinds in Korea argues the opposite risk is still live, that positioning is not yet clean rather than already cleared.
Read the original: Hedgeweek - UBS says hedge funds are close to done unwinding AI and semiconductor positions and could start buying back in before month-end. Commentary is the independent editorial view of Share Trading; the original article is credited to its publisher.