6 days ago
Hedge funds flip on green energy, start betting against oil stocks
The analysis showed that more hedge funds were, on average, net short stocks in the S&P Global Oil Index than net long for seven of the nine months starting October 2024. — Bloomberg
NEW YORK: Hedge funds are betting against oil stocks and winding back shorts on solar in a reversal of positions that dominated their energy strategies over the past four years.
Since the beginning of October and through the second quarter, equity-focused hedge funds have – on average – been mostly short oil stocks, according to a Bloomberg Green analysis of positions on companies in global indexes for sectors spanning oil, wind, solar and electric vehicles.
That's a reversal of bets that had dominated since 2021, according to the data, which are based on fund disclosures to Hazeltree, an alternative-investment data specialist.
Over the same period, funds have unwound short bets against solar stocks.
The analysis, which is based on a universe of some 700 hedge funds representing about US$700bil in gross assets, also showed that portfolio managers have stayed net long in the period.
There has been 'a bottoming out with some of these clean energy plays', said Todd Warren, portfolio manager at Tribeca Investment Partners Pty.
That trend has 'really occurred at the same time as we've seen – in the oil patch – some concerns with regards to supply and demand balance,' he said.
The analysis showed that more hedge funds were, on average, net short stocks in the S&P Global Oil Index than net long for seven of the nine months starting October 2024. By contrast, net longs exceeded net shorts in all but eight of the 45 months from January 2021 through September 2024.
The development coincides with a rise in oil supply as some the Organisation of the Petroleum Exporting Countries and its allies (Opec+) member nations act to preserve their market share.
Joe Mares, a portfolio manager at Trium Capital, a hedge fund managing about US$3.5bil, noted that ratcheting up output has 'not historically been great' for the oil industry.
Evidence of an economic slowdown in the United States and China, combined with an expectation that global oil inventories will continue to rise through the rest of 2025, means there's growing scepticism towards the sector.
Once investors take in 'the general slowdown in everything', the question then becomes: 'Who's buying the oil?' said Kerry Goh, Singapore-based chief investment officer at Kamet Capital Partners Pte.
Greenwich, Connecticut-based Tall Trees Capital Management LP is short oil stocks because 'we see much lower oil prices, especially in 2026', said Lisa Audet, the fund's founder and chief investment officer.
Investors may get further insight into the supply-demand balance as early as this week, with Opec set to release its monthly market analysis.
Updates are also due from the US Energy Information Administration and the International Energy Agency. On Monday, oil held close to two-month lows.
In the United States, meanwhile, President Donald Trump's quest to add supply in an effort to bring down the price of oil has unsettled local producers.
The Dallas Federal Reserve's latest quarterly energy survey, published on July 2, showed negative sentiment among oil companies towards the Trump administration's policy on the fossil fuel.
One respondent in the anonymised study said the administration's implied price target of US$50 a barrel is simply unsustainable for the industry.
Another spoke of the 'chaos' caused by current US trade policies, adding the volatility will drive companies to 'lay down rigs'. Meanwhile, the outlook for solar and wind stocks is starting to improve.
The analysis of Hazeltree's data showed that the average share of funds that were net short stocks in the Invesco Solar ETF dropped to 3% in June. That's the lowest percentage since April 2021, when green equities were trading near record highs.
The number of funds net long stocks in the First Trust Global Wind Energy ETF reached a 30-month high in February this year. Those positions fell back in June, but net longs still dominated shorts overall. — Bloomberg
