Key facts
- Global hedge funds lost nearly 3% of their gains in July.
- The losses were primarily due to unwinding technology-related trades.
- Momentum trades were a significant factor in the July downturn.
- Multi-strategy funds and Asia-Pacific stock pickers experienced negative returns.
- Quantitative equity hedge funds also saw monthly losses.
- Hedge funds' year-to-date gains remain around 8%.
Global hedge funds saw their year-to-date gains dented in July, losing almost 3% due to the unwinding of technology-related trades, according to a JPMorgan note. Despite the monthly setback, these funds are still up approximately 8% for the year across all strategies. The losses were primarily driven by crowded bets on technology stocks and momentum trades, which struggled as markets turned volatile. The note highlighted that when markets soured, speculators found it difficult to exit profitable positions at optimal levels. Leverage levels remained stable overall for July, but significant fluctuations occurred during the month, with borrowing still near five-year highs but below the peak of the last 12 months. Multi-strategy funds performed relatively better, ending July with negative 2.2% returns. In contrast, stock pickers in the Asia-Pacific region averaged a negative 9.4% return, marking their worst month on record according to Goldman Sachs. Global quantitative equity hedge funds, which focus more on stock market performance than economic fundamentals, averaged a negative 5% for July. JPMorgan identified these quant funds as the most leveraged strategy tracked, with an assumed leverage of 450%. JPMorgan also observed a pattern of hedge funds divesting U.S. stocks in July and then repurchasing them in September, a trend that has been more pronounced in 2023 than in most prior years, excluding 2020 and 2022. The bank's analysis indicated that hedge fund positioning in tech stocks remains relatively high from a long-term perspective, with larger trade sizes observed.