Hedge funds are experiencing their steepest drawdown since April’s so-called ‘Liberation Day’ as volatile markets trigger the unwinding of crowded trades, according to a report by Bloomberg citing strategists at JPMorgan Chase.
In a recent note, the bank said the recent escalation of conflict in the Middle East has weighed heavily on several hedge fund strategies. Systematic investors, including commodity trading advisers (CTAs), have endured their weakest stretch in nearly a year as sharp moves across futures markets disrupted trend-following models.
Data from HFR indicates that diversified CTA funds have fallen by roughly 4% so far in March, while a separate index compiled by Societe Generale shows trend-following strategies down more than 2% for the month.
Equity long-short hedge funds have also been hit by losses, partly due to positioning. According to JPMorgan, many managers had been overweight European and South Korean equities while maintaining underweight exposure to software stocks, a stance that proved costly during the recent market moves.
The sell-off comes as the intensifying geopolitical conflict pushed oil prices above $100 per barrel for the first time since 2022 and erased trillions of dollars from global equity markets in recent weeks.
Performance data reflects the pressure across strategies. The HFRX Equity Hedge Index, often used to track long-short equity performance, is on course to decline around 3% in March.
At the same time, hedge funds have been increasing bearish positioning in equity exchange-traded funds, with short exposure rising about 8.3% in the week through 6 March, according to prime brokerage data from Goldman Sachs.
