Quantitative Funds Post Sixth Consecutive Month of Losses amid Shift in Market Momentum

Quantitative Hedge Funds Suffer Worst Run Since 2023 Amid Market Volatility

A violent rotation in the underbelly of a bullish stock market is extending the worst run for quantitative hedge funds since 2023. According to an S&P Global index, a long-short momentum strategy, which buys recent equity winners and sells losers, dropped more than 3% for a second straight week, taking its two-week loss to the worst in more than three years.

Systematic long-short managers dropped 2.1% last week through Thursday, after declining 3.1% over a five-day stretch that was their worst since December 2023, according to Goldman Sachs's prime brokerage. Fundamental managers also fell last week as hedge funds cut leverage, with tech among the most-sold sectors.

The S&P 500's steady gains last week belied a drastic shift under the surface that's shaking up stock pickers. As the AI trade lost steam, with high-flying chip names like sliding, stodgier and cheaper stocks have rebounded again. Momentum volatility, now running hotter than the dot-com era, is flushing out hedge funds with VAR limits and retail traders chasing breakouts.