Systematic hedge funds have suffered their weakest spell of performance since August after a sharp reversal in artificial intelligence-related trades triggered losses across some of the market’s most crowded positions, according to a report by Reuters citing a recent Goldman Sachs client note.
Quantitative managers – which use computer-driven models and algorithms to identify trading opportunities – have surrendered around a quarter of the gains accumulated earlier this year amid heightened market volatility.
Year-to-date returns for the strategy have fallen to 10.8%, down from 14.4% recorded in late June, reflecting the impact of the recent market correction.
Goldman said losses were concentrated in heavily owned positions across US equities, developed Asian markets and, to a lesser degree, European stocks, where crowded positioning left many systematic strategies exposed to sharp price swings.
Technology shares, particularly semiconductor stocks that had been among this year’s strongest performers, experienced significant volatility during late June and early July. The moves were amplified in some Asian markets, notably South Korea, where elevated levels of retail investor leverage intensified price fluctuations.
Quantitative strategies represented approximately 10% of the world’s largest hedge funds in 2025, according to S&P Global data.
The market turbulence comes as global regulators continue to highlight concerns over elevated equity valuations, especially within the technology sector, alongside the growing influence of hedge funds on overall market dynamics. Policymakers including the Bank of England, the Bank of Japan and the Bank for International Settlements have previously warned that concentrated positioning and increased leverage could exacerbate periods of market stress.
Fundamental equity hedge funds also struggled during the recent sell-off, with Goldman estimating they declined 2.2% over the same period after many were caught on the wrong side of crowded technology positions.
Despite the setback, discretionary stock-picking managers remain ahead for the year, with returns of 15.5%, outperforming their systematic counterparts.
Goldman added that many fundamental managers have rapidly reduced exposure to artificial intelligence-related investments, unwinding positions that had previously been among their strongest contributors to performance.
The broad reduction in AI exposure has also driven hedge fund leverage down to its lowest level in the past year, signalling a significant pullback in overall risk-taking as managers respond to the recent bout of market volatility.
