Funds Flip the Switch: Hedge Funds Dump Oil, Warm to Solar

Key Impact Points:

• Hedge funds have shifted from years of betting on oil to taking net short positions, while easing short bets on solar.
• Concerns over oversupply, economic slowdown, and policy uncertainty are weighing on oil sector sentiment.
• Solar and wind stocks are seeing renewed interest, with shorts at multi-year lows and green equities rebounding in China.

Hedge Funds Reverse Energy Bets

Hedge funds are moving away from oil stocks and warming to solar in a marked reversal from strategies that dominated since 2021. Bloomberg Green’s analysis of Hazeltree data shows equity-focused hedge funds, on average, were net short oil stocks for seven of the nine months since October 2024, a shift from being mostly net long for nearly four years.

Over the same period, short bets against solar have been unwound. The data, covering about 700 hedge funds with $700 billion in assets, also shows portfolio managers remained net long wind positions.

“There has been a bottoming out with some of these clean energy plays,” said Todd Warren, portfolio manager at Tribeca Investment Partners Pty. This trend, he added, coincided with “concerns with regards to supply and demand balance” in oil.

Oil Sector Faces Oversupply and Weak Demand

The change comes amid rising oil supply as OPEC+ members move to defend market share. “Ratchet[ing] up output has not historically been great for the oil industry,” said Joe Mares, portfolio manager at Trium Capital.

Economic slowdowns in the US and China, coupled with expectations that global oil inventories will rise through 2025, are fueling skepticism.

“Once you take in the general slowdown in everything, the question then becomes, who’s buying the oil?” asked Kerry Goh, CIO at Kamet Capital Partners Pte.

Some funds are betting on a sustained price drop. “We see much lower oil prices, especially in 2026,” said Lisa Audet, founder and CIO at Tall Trees Capital Management LP.

In the US, President Donald Trump’s push to increase supply in a bid to lower prices has rattled domestic producers. The Dallas Fed’s July 2 energy survey showed negative sentiment toward the administration’s fossil fuel policy, with one respondent calling the $50 a barrel target “unsustainable” and another describing “chaos” from trade policies.

Renewed Interest in Solar and Wind

By June, only 3% of funds were net short the Invesco Solar ETF — the lowest since April 2021, when green equities were near record highs. Wind positions also remain net long despite some pullback since February’s 30-month high.

China’s green energy sector is rebounding as the solar industry addresses overcapacity. The Solactive Select China Green Energy Index, including Longi Green Energy Technology Co., is up about 19% from April lows after losing half its value between 2021 and 2023.

In the US, more than $22 billion in clean energy projects have been canceled or delayed since January following the rollback of Biden-era subsidies. Yet some investors see clarity emerging.

“At least now we know what the rules are going to be and so people can go back to evaluating these as businesses,” Mares said.

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