Hedge Funds Reverse Energy Strategies, Shift from Oil Shorts to Renewables

Hedge funds have shifted from shorting oil stocks to investing in renewable energy, reversing their energy strategies since 2021. Bloomberg Green's analysis of Hazeltree data shows that funds have turned bearish on oil stocks while easing short positions in solar. The reversal highlights a growing interest in renewable energy among hedge funds.

Hedge funds have reversed their energy investment strategies, shifting from shorting oil stocks to investing in renewable energy, according to Bloomberg Green's analysis. The trend, observed since the beginning of October and through the second quarter of 2025, marks a significant change in hedge fund positions within the energy sector [1].

The analysis, based on data from Hazeltree and involving approximately 700 hedge funds representing $700 billion in assets, reveals that hedge funds have been predominantly short oil stocks. This is a reversal from the previous four years, during which short positions on oil stocks were more prevalent [1]. Concurrently, hedge funds have reduced their short positions on solar stocks, indicating a growing interest in renewable energy.

The shift in hedge fund strategies coincides with increasing concerns over oil supply and demand balance. The Dallas Fed's latest quarterly energy survey, published on July 2, 2025, shows negative sentiment among oil companies regarding the Trump administration's policies on fossil fuels [1]. Additionally, the economic slowdown in the US and China, along with expectations of rising global oil inventories, have contributed to skepticism about the oil sector.

Meanwhile, the outlook for solar and wind stocks has improved. The average share of funds that were net short solar stocks dropped to 3% in June 2025, the lowest percentage since April 2021. The number of funds net long wind stocks reached a 30-month high in February 2025, although these positions fell back in June, net longs still dominated shorts overall [1].

Other hedge fund managers have noted the potential of AI to drive a generational swell in energy demand, which could significantly support renewable energy. According to Karim Moussalem, chief investment officer at Selwood Asset Management, the market is signaling that AI is the biggest trend in their careers. To meet the energy demands from AI, renewables are expected to play a substantial role, as they are the fastest to market [1].

The strategic alignment of renewable energy companies with the Inflation Reduction Act (IRA) and broader decarbonization trends has positioned companies like XPLR Infrastructure to capitalize on the projected 55% growth in U.S. power demand by 2040. However, near-term execution risks persist [2].

The shift in hedge fund strategies reflects the growing recognition that economic growth without low-carbon energy is inconceivable. A significant portion of the marginal energy growth in the last decade has come from renewables, and this trend is expected to continue [1].

References:
[1] https://finance.yahoo.com/news/hedge-funds-flip-green-energy-160031734.html
[2] https://www.ainvest.com/news/xplr-infrastructure-q2-earnings-blueprint-renewable-energy-resilience-growth-2508/