Momentum strategies, long favoured by hedge funds chasing winners and selling laggards, saw one of the steepest reversals in years last week as markets reacted to the US-Iran conflict, disappointing February jobs data, and AI-driven tech disruption, according to a report by Bloomberg.
The report cites Goldman Sachs prime brokerage data as showing that hedge funds’ net exposure to medium-term momentum factors had reached multi-year highs, highlighting how crowded the trade had become before the selloff.
The unwind hit high-flying tech and software stocks hardest, driving ETF tracking momentum factors down more than 2% on Monday. Volatility surged, with the Cboe VIX reaching levels not seen since last April’s tariff-driven shock, while oil prices topped $100 a barrel, stoking fears of inflation and energy supply disruptions.
Analysts say the moves reflect extreme stress in equity markets, with some hedge funds forced to pare positions in previously dominant winners. Yet contrarian indicators –overbought crude and historically high VIX levels – suggest potential opportunities for funds looking to capitalise on the panic-driven rotation.
