Hedge Funds Pay the Price for the AI Wave Reversal
Hedge funds have faced significant pressure following the sudden reversal of the AI and momentum stock market rally since June 22. This has led to notable losses, particularly for systematic funds, which have declined by 3.6%, their worst performance since the summer of 2025. These funds have lost nearly a quarter of their year-to-date gains, though they still maintain a 10.8% return year-to-date.
In contrast, basic short-buy and buy-sell funds have shown greater resilience, declining by only 2.2% and maintaining strong gains of 15.5% since the beginning of 2026. The losses were primarily concentrated in short positions, especially in US stocks, while momentum positions and the technology sector contributed to the downward pressure.
Goldman Sachs noted that fund managers have begun sharply reducing their long positions related to artificial intelligence, lowering exposure to momentum stocks and reducing leverage to one of its lowest levels in the past year, in a move that reflects a clear shift towards risk management following the rapid change in market direction.
