Hedge Fund Crowding Splintered by Region in 2025, Setting a Volatile Backdrop for 2026

Hedge Fund Crowding Splintered by Region in 2025, Setting a Volatile Backdrop for 2026

Hedge fund positioning diverged sharply across regions in 2025, reflecting contrasting economic drivers and policy priorities that could shape market behavior in the year ahead, according to Hazeltree’s 2025 Year in Review Crowdness Report. The analysis, released on January 14, draws on anonymized and aggregated positioning data from Hazeltree’s hedge fund client base and tracks long and short crowding across regions and sectors from January through December 2025.

The report highlights how hedge fund crowding—defined as the concentration of many funds in the same trades—served as a mirror of underlying regional economic drivers. While certain sectors appeared crowded globally, the composition and rationale behind those trades differed meaningfully across North America, Europe, the Middle East and Africa (EMEA), and Asia-Pacific (APAC).

North America: Intangible Assets and Persistent Consensus

In North America, hedge fund crowding was dominated by sectors tied to intangible assets and services. Information Technology remained the most crowded sector on the long side throughout 2025, while Health Care and Financials alternated as the second- and third-most crowded long exposures. On the short side, Information Technology again ranked as the most crowded, followed by Health Care and Consumer Discretionary.

Hazeltree’s heatmap analysis shows that positioning in the region was notably stable over time. “Our heatmap analysis demonstrated the long and short side moved in tandem most of the year for those crowded sectors within the North America region, such as Consumer Discretionary, Financials, and Information Technology sector,” said Tim Smith, Managing Director of Data Insights at Hazeltree. “Meanwhile, longs in the Healthcare sector picked up volume in the month of September while the shorts remained stable throughout the year.”

Within technology, hedge fund longs were concentrated in Software & Services companies including Alphabet, Microsoft, and Meta Platforms, as funds continued to favor firms that had demonstrated progress in converting artificial intelligence investment into recurring revenue. Crowded short positions included International Business Machines and Strategy, while Synopsys emerged among the most crowded shorts amid concerns cited in the report regarding execution and integration risks associated with its planned acquisition of Ansys.

EMEA: Policy-Driven Rotation Into Industrials

In EMEA, hedge fund crowding reflected a shift toward physical and tangible assets. Industrials emerged as the most crowded sector for both long and short positions, followed by Financials and Consumer Discretionary. Hazeltree links this pattern to policy-driven investment tied to defense and energy spending, including initiatives associated with the European Union’s “ReArm Europe Plan/Readiness 2030.”

Capital goods companies dominated crowded positions within Industrials, while Financials showed a split between crowded bank longs and diversified financials shorts. The report notes that these positioning trends moved largely in tandem on a month-over-month basis, suggesting sustained conviction rather than rapid rotation.

APAC: Manufacturing and Infrastructure at the Core

In Asia-Pacific, hedge fund crowding underscored the region’s role as a manufacturing and supply-chain hub for global technology. Industrials and Technology Hardware were the most crowded sectors on both the long and short sides, while software-driven themes common in North America were largely absent.

Hazeltree’s analysis shows that capital flowed toward companies involved in physical infrastructure and production capacity, aligning with the region’s importance in supporting the global technology stack rather than end-market software monetization.

A Global Consumer Discretionary Divide

Across all regions, Consumer Discretionary emerged as what the report describes as a “global battlefield.” While the sector was heavily crowded, hedge fund positioning diverged at the industry and company level. Hazeltree notes that longs tended to cluster in companies that diversified production away from China to mitigate U.S. tariff exposure, while shorts were concentrated in firms facing rising import costs, currency pressure, or slowing domestic demand.

Looking Ahead to 2026

Although the report is retrospective, Hazeltree includes a brief outlook for 2026, noting that the year has already begun amid significant geopolitical frictions. The firm suggests that divergence and volatility are likely to remain dominant themes and points to the potential start of a “historic IPO super-cycle,” citing anticipated debuts from companies such as SpaceX, Stripe, OpenAI, Anthropic, and Databricks.

Hazeltree does not provide forecasts or performance projections, but its analysis suggests that the crowded positioning patterns established in 2025 form the backdrop against which hedge funds will navigate the year ahead, as markets adjust to persistent policy influence, regional divergence, and episodic volatility.