HF Highlights 2026.08.21

Weekly HF Highlights: Large Supply Across Global Equities, Leading to Large Decline in Net Lev

Prime Brokerage – Strategic Content Group

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This Week’s Highlights (as of Thursday, August 20th) In what was another volatile week for global equities, HFs pivoted to reducing net exposure as they sold equities across all regions – in fact, it was the 2nd largest week of supply from HFs in the last 12M, trailing only the week of June 26th of this year. While much of the focus this week was on the rotations playing out across US equities, it was actually non-US equities that drove the majority of the net selling. APAC accounted for the largest share of the net selling as HFs trimmed net exposure across Japan, China, S. Korea, and Taiwan. Europe and N. Am equities were also net sold, though the magnitude (-1.3 in EU, -1.1z in N. Am) was much smaller in relative terms – we’d also note that much of the supply this week came amidst lighter overall volumes when compared to levels seen back in June / July. As a result of the supply, net lev across the board fell pretty substantially, with the ~5% decline in US L/S nets over the last week ranking as a >98th %-tile event. Focusing in on N. Am, most of the focus this week was around the rotations which played out mid-week, with several of the same factors which weighed on PnL in June / July once again impacting performance. Across L/S portfolios, PnL did hang in slightly better than it did back in June / July which we attribute to the fact that much of the exposure to 1H26 high-conviction themes on both the long and short side had moderated in material amounts – what ended up causing more pain was just the beta to the market given that nets were near 12M highs at 58% entering the week, whereas alpha was only a marginal detractor. Flows this week generally tracked in line with how various themes performed, with the most net sold areas including AI Tech Beneficiaries, Global Memory, and Semi Caps – HFs also sold Large Cap Banks / Metals & Miners where positioning was relatively extended. On the other hand, HFs ended as net buyers of Health Care and Financials with much of that flow coming from covers, particularly within HC – the most net bought themes here included High-SI Biotech (MSXXBIOS Index), Digital Health (MSXXDHTH Index), and Pharma, whereas the buying within Fins came in Payments, Alts, and Regional Banks. At the factor level, HFs were net buyers of Quality, DivYield, and Size vs. sellers of Momentum, Volatility, and Beta. Outside N. Am, most of the supply was concentrated in APAC – similar to the supply observed in June / July, the selling was once again concentrated in the TMT space, with Semis, Electronic Equip, Hardware ranking as the three most net sold industries by a wide margin. Net exposure to the broader region has continued to compress, particularly across JP / KR / TW where net exp had risen to ~23% of global nets as of late June (now at ~17% due to a mix of weaker relative PnL / active de-grossing). As for the selling this week, the supply was a near ~50/50 split between US and Asia-based funds. In Europe, the level of selling was a bit lighter as HFs both added to shorts / unwound longs. In EU, much of the supply was seen in the TMT space (Semis & Software), though HFs also sold Financials (Banks) and Health Care (Pharma). In terms of performance, the average Global HF gave back ~85bps this week, though they remain +1.4% for the month and +11.0% for the year. As noted in our mid-week update on Quant /…