S&P 500 At Highs, Hedge Funds Step Back—Semiconductor ETFs Test Limits

by | Apr 27, 2026 | General

Semiconductor ETFs are entering a critical phase as a sharp equity rally runs into signs of positioning stress, with hedge funds aggressively cutting exposure even as markets push higher.

Funds like the iShares Semiconductor ETF (NASDAQ:SOXX) and VanEck Semiconductor ETF (NASDAQ:SMH)—key beneficiaries of the AI-driven surge—are heavily concentrated in mega-cap chipmakers such as Nvidia Corp (NASDAQ:NVDA), ASML Holding (NASDAQ:ASML), and Taiwan Semiconductor Manufacturing Company (NYSE:TSM). These stocks have powered much of the market’s gains, but they also sit at the center of hedge fund positioning, making ETFs tracking the space especially sensitive to any shift in sentiment.

Both SOXX and SMH are down 2.4% and 1.5%, respectively, on Monday.

Hedge Funds Step Back From Tech

That shift may already be underway.

According to Goldman Sachs data cited by Bloomberg, hedge funds cut gross leverage by 4.6 percentage points last week, marking the largest notional de-grossing in seven months. The unwinding was driven primarily by long selling in single stocks, rather than short covering, indicating active risk reduction.

Technology was at the heart of the move:

  • The sector saw its largest weekly de-grossing since July 2024
  • Funds were net sellers across 9 of 11 sectors
  • Long sales outpaced short covers by roughly 1.9 to 1

Despite this, positioning remains stretched, according to the Bloomberg report. Tech still accounts for about 20.6% of total U.S. equity exposure, placing it in the 98th percentile over the past five years. That suggests funds are trimming positions, but not exiting, leaving the trade crowded.

Momentum Is Strong—But Stretched

The broader market backdrop adds another layer of risk.

The S&P 500 swung from oversold to overbought in just 12 days, last week, one of the fastest reversals on record. Such rapid moves are often associated with short-term momentum bursts rather than sustained trends.

At the same time, systematic strategies such as CTAs have continued to buy equities aggressively, helping fuel the rally. Market observers, including Global Market Observations, have pointed to increasingly stretched technical indicators, indicating a divergence between model-driven buying and more cautious fundamental investors.

Crowded Trade Risk Builds For Chip ETFs

For semiconductor ETFs, that divergence is critical.

Exposure to semiconductors and equipment names remains high. With positioning elevated and early signs of de-risking already visible, any further unwinding could lead to outsized volatility in ETFs tied to the space.

Because funds like SOXX and SMH are highly concentrated, moves in a handful of stocks can drive overall performance. If hedge funds continue to cut exposure, or if earnings fail to justify elevated valuations, the impact on these ETFs could be amplified.

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