Quant-driven hedge funds are enduring their toughest month since July this month as a sharp reversal in crowded trades sends ripples through systematic strategies, according to a report by Bloomberg citing a note from Goldman Sachs' prime brokerage desk.
Quant long-short funds are down 1.7% so far in October, according to Goldman Sachs, their first monthly loss in three months, as once-profitable momentum trades in technology, gold, and crypto abruptly reversed. By contrast, fundamental equity funds have remained broadly flat.
The shakeout has hit some major names, including Renaissance Technologies’ $20bn Institutional Equities Fund which reportedly lost about 15% through 10 October.
The latest “momentum unwind” has stalled gains in previously high-flying assets – from AI-linked tech stocks and European banks to gold – as a rotation into lower-quality, speculative names gathers pace. A Morgan Stanley basket tracking momentum equities slumped 11.3% in just five days, its steepest decline since March.
The selloff has also spilled into other quant factors such as “quality” and “low volatility,” which lost ground as expectations for monetary easing drove investors toward riskier assets.
Goldman’s data shows that funds have been cutting exposure to momentum factors as the reversal intensifies, raising the risk of a broader deleveraging cascade.
Despite the turbulence, major equity indices ended the week higher, with the S&P 500 up 1.9% and the Nasdaq 100 rising 2.2%.
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