AI selloff drives quant funds' worst performance since August

By Nell Mackenzie and Amanda ‌Cooper

LONDON, July 9 (Reuters) - ​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.

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.

(Reporting by Amanda Cooper; Editing by Elisa Martinuzzi and ‌Joe Bavier)

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