Key facts
- Systematic (quant) hedge fund managers have posted their worst trading results in almost a year.
- These funds have given back a quarter of their year-to-date returns.
- Returns for quant funds are now up 10.8% for the year, down from 14.4% on June 22.
- Losses were concentrated in U.S. equities, Asian developed-market stocks, and European markets.
- Volatility in chipmaker stocks and retail leverage in Korean markets contributed to losses.
- Fundamental managers, who exited AI trades, are still up 15.5% for the year.
Some hedge fund managers have experienced their worst trading results in nearly a year, as many were caught in crowded trades amidst highly volatile markets, according to Goldman Sachs. Systematic managers, often referred to as quant funds, which utilize algorithms to trade market trends, have relinquished a quarter of their year-to-date returns. These returns now stand at 10.8% for the year, a decrease from 14.4% recorded on June 22.
The losses primarily stemmed from positions against some of the most crowded market segments, including U.S. equities, Asian developed-market stocks, and to a lesser extent, European markets. Significant volatility in chipmaker shares in late June and early July created a challenging trading environment. The situation was exacerbated by substantial leverage among retail investors, particularly in Korean markets, which amplified share price movements.
Quant funds represented approximately 10% of the largest hedge funds in 2025, according to S&P Global data. Regulators, including those from the Bank of England, the Bank of Japan, and the Bank for International Settlements, have previously expressed concerns regarding high valuations, especially within the technology sector. Shares of companies like Micron Technology, Intel, and Marvell Technology have seen approximately 200% increases in 2026 alone. These bodies have also voiced worries about the increasing role of hedge funds in financial markets and their potential to add to volatility and risk.
In contrast, fundamental managers, or stockpicking funds, saw a decline of 2.2% during the same period, having been impacted by crowded trades in the tech sector. However, this group still maintains a year-to-date return of 15.5%. These stockpickers have reportedly "aggressively" exited trades associated with artificial intelligence, which had previously driven winning positions. This significant exit has led to hedge fund leverage reaching its lowest point in the past year, indicating the scale of the trading activity adjustments.