Global hedge funds surrendered almost three percentage points of performance in July as a sharp reversal in technology stocks triggered losses across multiple strategies, although the industry remains up around 8% for the year, according to a report by users citing JPMorgan analysis.
The bank said July’s volatility was driven by the unwinding of crowded technology trades as investors rushed to reduce exposure following a sell-off in AI-related stocks. The market turbulence was exacerbated by higher oil prices during the Iran conflict, which weighed on global equities and prompted a sharp correction across semiconductor stocks, particularly in Asia.
JPMorgan said many hedge funds struggled to exit heavily crowded technology positions before prices fell, amplifying losses as the sector declined.
Despite the challenging month, overall leverage across the hedge fund industry finished July broadly unchanged. However, the bank noted that leverage fluctuated significantly during the month and remains close to five-year highs, albeit below the peak levels seen over the past 12 months.
Performance varied considerably by strategy, with multi-strategy hedge funds proved the most resilient, recording an average loss of 2.2% during July. By contrast, Asia-Pacific equity long-short managers endured the steepest declines, with average losses of 9.4% as the region’s technology sector bore the brunt of the AI-driven sell-off.
Quantitative equity hedge funds also struggled, posting average losses of around 5%. JPMorgan said quantitative managers remain the industry’s most leveraged strategy, estimating average leverage at approximately 450%.
The bank also highlighted a recurring seasonal trading pattern among hedge funds. Since 2018, managers have typically reduced equity exposure in July by exiting underperforming positions before rebuilding those holdings later in the year. According to JPMorgan, this year’s deleveraging was the most pronounced since 2022, with only 2020 seeing a larger reduction in gross exposure.
Separately, Goldman Sachs said global equity long-short hedge funds experienced their second-worst monthly performance of the past four years in July, while Asia-focused stock-pickers recorded their weakest month on record.
JPMorgan added that momentum strategies were a major contributor to July’s losses, as many investors remained heavily positioned in technology shares following their strong gains earlier in the year. Despite the recent correction, the bank said hedge fund exposure to the technology sector remains elevated over the longer term, with position sizes still relatively large.
