Hedge Funds Suffer Historic Losses as AI Rally Fades
Hedge funds have experienced significant losses as the AI rally lost momentum in July, according to Goldman Sachs. The bank notes that the pullback in AI-related stocks forced managers to unwind some of their heavy positions, resulting in one of the strongest de-grossing periods of the past decade.
The Hedge Fund VIP list of most popular long positions suffered its worst 1-month underperformance against the S&P 500 in over 20 years of history. July marked one of the sharpest hedge fund de-grossing episodes of the past decade, with funds pulling back fast from AI stocks.
Goldman Sachs asserts that hedge fund performance, leverage, and key long positions have shifted considerably as the AI trade changed course. Data from across Wall Street supports this cooling-off period.
JPMorgan notes that since 2018, hedge funds have tended to dump unprofitable stock positions in July. This summer slump might be part of a predictable seasonal pattern, with traders potentially picking up tech stocks again by September.