(Bloomberg) — Hedge funds are shifting their strategies by betting against oil stocks while reducing their short positions on solar stocks, marking a significant change from trends that have prevailed over the past four years.
Market Dynamics Shift
Since early October, an analysis by Bloomberg Green reveals that equity-focused hedge funds have predominantly shorted oil stocks throughout the second quarter. This contrasts sharply with the positions that have been prevalent since 2021, based on findings from fund disclosures to Hazeltree, a company specializing in alternative-investment data.
Changes in Clean Energy Positions
At the same time, these funds have reduced their short positions on solar stocks. The analysis, covering approximately 700 hedge funds that manage around $700 billion in assets—about 15% of the industry’s total—also indicates that managers have maintained a net long stance on wind stocks during this time.
Market Trends and Concerns
Todd Warren, a portfolio manager at Tribeca Investment Partners, noted a stabilization in clean energy investments, coinciding with increasing concerns over oil supply and demand dynamics. The analysis shows that hedge funds have more often been net short on the S&P Global Oil Index than net long for seven of the nine months starting in October 2024.
Oil Supply and Economic Slowdown
This trend coincides with an increase in oil production, as some OPEC+ nations are trying to hold onto their market share. Joe Mares from Trium Capital points out that increasing output has historically been detrimental to the oil sector. With signs of an economic slowdown in the U.S. and China, and expectations of rising global oil inventories, skepticism about the sector is growing.
Investor Sentiment on Renewable Energy
The outlook for solar and wind stocks seems to be brightening. Data analysis shows that the average share of funds shorting the Invesco Solar ETF fell to 3% in June, the lowest since April 2021. In the U.S., ongoing adjustments in policies have started to reduce the uncertainty, paving the way for renewed investments in wind and solar energy.
Future Expectations and Cleanup Energy Demand
Fund managers believe that the rise of AI could create a new surge in energy demand, placing renewables at the forefront. Karim Moussalem from Selwood Asset Management notes that renewables will likely account for a significant portion of the necessary capacity by 2035. This strategic pivot among funds underscores the growing consensus that economic advancement necessitates a transition to low-carbon energy sources.
