Global industrial stocks feel the benefit of the biggest hedge fund buying in ten years

By Jules Rimmer

Strengthening global growth and rearmament trends are heightening the allure of industrial stocks

The most widely traded industrials ETF is up about 5% for the year so far.

Hedge funds are buying industrial stocks more aggressively than at any time in the last decade.

In the week ending Jan. 15, industrial stocks globally was by far the most net-bought sector among hedge funds, according to data collated by Goldman Sachs, which produces a weekly report from its prime brokerage division detailing flows among the hedge funds that use its services.

In a report that published Friday, lead analyst Sarah Cohen highlighted that last week's inflows into industrials were the largest since that report began in 2016. Significantly, her team said that was "driven entirely by long buys" - so not short-covering.

The impact of the net buying was felt by the largest U.S. exchange-traded fund on the sector, State Street Industrial Select Sector SPDR ETF XLI, which rose about 3% last week, while the Eurostoxx industrial goods and services index XX:SXNE has also made a strong start to the year, up 6%. Optimism toward the sector was encouraged by the release of U.S. industrial production that showed a monthly pickup of 0.4% in December, said Goldman.

European industrials, meanwhile, were no doubt buoyed by the developments in Greenland that suggest governments will be obliged to raise defense spending, hence the popularity of subsectors like aerospace and defense, machinery and electrical equipment.

Goldman Sachs' data revealed that its prime book (the positions hedge funds hold in their custody) is now overweight the industrials sector by 5.1% relative to its benchmark. This places the current positioning in the 90th percentile in the last five-year period.

Hedge fund positioning in industrials relative to their benchmark weighting is plus 5.1%, close to the highs of the last five years. Source Goldman Sachs Research

Bruno Schneller, managing partner at Erlen Capital in Switzerland, observed:

"The intensity of flows into industrials suggests hedge funds are no longer making a short-term tactical bet, but positioning for a broader reacceleration in global growth and capital spending. Industrials are increasingly being used as a high-beta expression of that view - from infrastructure and defense through to electrification and reshoring. At the same time, flows of this magnitude also point to rising crowding risk, making selectivity more important than ever as positioning becomes increasingly stretched."

Other trends noted by Goldman included a bias toward financials XLF, driven by short-covering as well as long buys, after what was generally accepted to be a decent week of earnings reports from the sector. Hedge funds' long-short positioning ratio among U.S. banks is now 2.24 which is hovering around three-year highs. Underlying profits generated by the six largest U.S. banks grew 8% year over year in the fourth quarter of 2025.

-Jules Rimmer

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01-19-26 1025ET