Hedge fund stock-pickers suffered significant losses on Monday as a global sell-off in technology shares was triggered by the emergence of a low-cost artificial intelligence model from China’s DeepSeek, according to a report by Reuters.
The report cites a Goldman Sachs trading update and industry sources as highlighting that hedge funds that invest based on company fundamentals — rather than using algorithmic trading — fell 1.1% for the day, marking a sharp decline for strategies that typically target 15% annual returns in strong years like 2024.
While Goldman Sachs does not disclose the total size of the hedge funds it tracks, data from BarclayHedge suggests that Monday’s sell-off likely resulted in billions of dollars in losses.
According to BarclayHedge, hedge funds that take both long and short positions had $176.7bn in assets under management at the end of Q3 2024. Meanwhile, long-only hedge funds controlled $672.9bn in assets during the same period.
The market turmoil primarily hit hedge funds that had concentrated investments in major technology stocks. Many had bet heavily on continued gains for the so-called “Magnificent 7″—the largest US companies by market capitalisation, including Nvidia, Apple, and Microsoft.
The risks of these concentrated trades had been flagged by Bank of America (BofA) in a report last week, which cited hedge funds’ exposure to these stocks as a major investor concern.
Monday’s sell-off saw Nvidia plunge 17%, erasing nearly $600bn in market value—marking the largest single-day market capitalisation loss for any company on record.
Goldman Sachs reported that Monday’s US single-stock selling was the largest seen in six months and among the most extreme in the past five years. Hedge funds dumped tech stocks for the third consecutive session, as long positions became too risky to maintain.
Meanwhile, systematic hedge funds, which rely on algorithmic models to trade based on price trends and market volume, benefited from the volatility. These funds, which had started the week short on markets, finished Monday up 1.7%, having also reduced their bets against riskier stocks, Goldman said.
