Quant hedge funds have begun 2026 under pressure, with crowded positions in US equities triggering the sector’s worst drawdown since October and reigniting concerns over volatility in systematic strategies, according to a report by Bloomberg citing prime brokerage data from Goldman Sachs.
The bank’s figures highlight that the first half of January marked the weakest 10-day period for systematic long-short equity managers in more than three months, with losses of around 1%. The sell-off was heavily concentrated in US stocks, echoing the sharp reversals that disrupted quant portfolios in mid-2025.
UBS meanwhile, estimates that US-focused quant funds fell roughly 2.8% over the first two weeks of the year, with last Friday marking the largest single-day deleveraging event since late December.
While recent market moves driven by US policy headlines may have eased pressure, much of the damage has already been absorbed, and it remains unclear whether systematic strategies can recover near-term losses.
The setback follows a year in which many quant managers finished 2025 with positive returns but experienced two significant drawdowns — during early summer and again in October — as momentum reversals and rallies in lower-quality stocks undermined factor-based positioning.
Goldman analysts attributed the latest losses to three key drivers: drawdowns in crowded trades, short exposure to high-beta stocks, and adverse idiosyncratic moves. As in previous episodes, the bulk of the drag came from short books, although momentum strategies helped limit losses this time.
The turbulence comes amid heightened global market volatility. Risk appetite surged at the start of the year as optimism around artificial intelligence and economic growth fuelled a rotation into small caps and higher-risk shares. That trend has since reversed, with geopolitical tensions and renewed trade concerns weighing on sentiment.
Since the start of January, the S&P 500 has slipped modestly, while the Nasdaq 100 has fallen more than 1%. Gold, by contrast, has surged to record highs.
Analysts note that quant strategies are particularly vulnerable during periods when speculative or “junk” assets rally sharply — a recurring feature of each major drawdown over the past year. Such moves tend to hurt strategies that systematically short lower-quality companies.
Although a sharp risk-off shift earlier this week provided some relief — with popular hedge fund long positions rising and heavily shorted stocks falling — factor-based strategies remain under pressure. US long-short portfolios favouring stable companies have fallen roughly 2.7% year-to-date, while quality-focused strategies are also marginally negative, according to index data.
