Patrick O'Shaughnessy's fund entered 2026 net short application software

Patrick O’Shaughnessy has said that his fund sold nearly its entire position in application software and entered 2026 net short the category. That is not a cautious tilt or a modest reduction in weighting. It is a full directional reversal on a segment that dominated growth equity portfolios for most of the past decade.

The substance of the move is worth sitting with. The fund held application software broadly, kept only one or two small residual positions, and then built a net short. That sequence requires a view, not just a hedge. A manager does not exit a category almost entirely and then add short exposure because the thesis is murky. The position implies a specific conviction: that application software as a class is priced for outcomes it will not deliver, and that the asymmetry now favors the downside.

What makes the disclosure notable is the framing O’Shaughnessy chose. “We were actually net net short” is not the language of trimming. The repetition of “net” is deliberate emphasis, and the word “actually” signals that even O’Shaughnessy treated the outcome of the repositioning as something worth flagging. Funds that move from long to short on a category do not typically advertise it casually. The phrasing suggests the position was arrived at through a process that surprised even those running it.

We basically sold almost all of our software, almost all of our application software. We still have one or two small ones, but entering this year, we were actually net net short. Patrick O'Shaughnessy

The timing sharpens the picture. Entering a year net short application software means the fund committed to that posture before seeing how 2026 would develop. That is a prospective bet, not a retrospective cleanup. It carries the kind of explicit directional risk that long-only funds rarely accept on a category basis, and that even multi-strategy funds typically reserve for individual names rather than entire verticals.

What the underlying thesis is, O’Shaughnessy did not elaborate on in the material available here. But the structure of the trade tells its own story. Application software has long been valued on growth and retention assumptions that presuppose a relatively stable competitive environment. Any credible reason to believe that environment is shifting, whether from new substitutes, pricing pressure, or changes in buyer behavior, would create exactly the kind of setup where a category that looks expensive on current multiples becomes actively attractive to short. The fund’s move suggests O’Shaughnessy sees that setup in place.

The broader question the position raises is whether this repositioning is idiosyncratic or representative of a view that other sophisticated allocators hold privately but have not yet acted on publicly. A single fund’s posture is a single fund’s posture, and one manager’s conviction does not define a category’s fate. But when that manager has historically been close to the software and technology investment community, the decision to go net short carries more signal than a similar move from a generalist macro fund with no particular edge in the space. The position is worth watching, not because it settles anything, but because it is a clear, falsifiable bet on a direction that much of the market has not yet priced.

The simplest read is also probably the right one: O’Shaughnessy looked at what his fund owned in application software, concluded the category’s risk-reward had inverted, and moved accordingly. The size of the reversal, from nearly full long to net short, suggests the reassessment was not incremental. When a manager who has watched a category closely decides not merely to reduce but to flip, that is the kind of data point that deserves attention on its own terms, without needing external confirmation to be worth considering.