AI Trade Reversal Wipes Out Quarter of Hedge Fund Gains as Quant Funds Post Worst Loss Since 2025

AI selloff drives quant funds' worst performance since August

Hedge funds have recently faced substantial setbacks, primarily due to widespread trades within unstable markets. Systematic managers lost about 25% of their returns for the year, significantly affecting their overall performance. This downturn arose from substantial bets on U.S. and Asian equities, both of which faced dramatic price fluctuations. Additionally, fundamental managers also reported losses after withdrawing from the saturated tech sector. Some hedge fund managers have in recent weeks posted their worst trading results in almost a year, as many got caught in crowded trades amid highly volatile markets, according to Goldman Sachs. Goldman said in a note dated Wednesday that systematic managers - sometimes called quant funds - that use algorithms to trade market trends, have ⁠given back ⁠a quarter of their year-to-date returns. Returns for this group of traders are now up 10.8% for the year, down from a return of 14.4% on June 22. US MarketsPowered By As on 09 Jul 2026, 07:21 PM IST S&P 500 Top Gainers KLA245.87(11.16%) Lam Research367.76(10.39%) Applied Materials626.62(9.84%) Corning200.55(8.98%) Gainers" S&P 500 Top Losers Coterra Energy32.56(-8.62%) PepsiCo136.65(-4.11%) Palantir Technologies127.12(-3.86%) FactSet Research Systems238.40(-3.80%) Losers" Losses came from bets against some of the biggest and most crowded parts of the market right now - U.S. equities, Asian developed-market stocks and, to a lesser extent, Europe, the note said. Huge volatility in shares of ⁠chipmakers had made for a tricky trading environment anyway in late June and into early July. But hefty levels of leverage among retail investors ⁠in Korean markets in particular amplified a lot of the share-price moves. Quant funds made up roughly 10% of the largest hedge funds in 2025, according to data from S&P Global. Regulators, including those at the Bank of England, the Bank of Japan and the Bank for International Settlements, have been warning for some time about lofty valuations, particularly in the tech sector where shares in companies like Micron Technology , Intel or Marvell Technology have risen by around 200% in 2026 alone. And they've voiced concern over how the growing role hedge funds play in financial markets adds to volatility ⁠and risk. Goldman said fundamental managers, or stockpicking funds, were down 2.2% in the same period, having been caught up in crowded tech sector trades. But this group, it said, was still up 15.5% this year. These stockpickers have "aggressively" fled trades related to AI, most of which had previously driven winning trading positions, Goldman said. This mass exit has brought hedge fund leverage to its lowest levels of the last year, a sign of the scale of their trading activity.

Goldman says AI trade reversal pressures hedge fund returns By Investing.com

Investing.com -- Hedge funds have suffered losses across long-short strategies as the artificial intelligence and momentum trade that has dominated much of 2026 reversed since June 22, according to Goldman Sachs' Prime desk. Systematic managers have absorbed the brunt of the downturn, falling 3.6% in what Goldman Sachs described as their worst drawdown since the summer of 2025. The losses are said to have wiped out roughly a quarter of the cohort's gains for the year, leaving systematic funds up 10.8% year-to-date, down from a 14.4% gain recorded on June 22. Goldman Sachs said the damage was concentrated on the short side, led by U.S. equities, followed by developed Asia and Europe, with momentum and crowded positioning identified as the main drags on performance. Fundamental long-short managers have held up better in absolute terms, Goldman Sachs said, slipping 2.2% since June 22 while remaining up 15.5% for the year. The bank noted that only 0.8 points of that loss was alpha, with information technology and momentum exposure responsible for the damage. Goldman Sachs pointed to how fundamental managers are responding as particularly significant, noting they are "aggressively cutting the AI longs that had generated their entire year-to-date alpha through June 22." That unwinding has stripped momentum exposure from portfolios and pushed gross leverage into the bottom decile over the past year, according to Goldman Sachs.