Some of the world’s largest hedge funds have recorded their worst trading stretch in close to a year, caught off guard by volatile markets and overcrowded investment positions, according to a new analysis from Goldman Sachs.
In a note released Wednesday, Goldman Sachs reported that systematic managers — commonly known as quant funds — which rely on computer algorithms to follow market trends, have surrendered about one-quarter of their gains for the year. That group’s returns now stand at 10.8% for the year, a notable drop from the 14.4% return recorded as recently as June 22.
The losses were largely tied to bets placed against some of the most heavily traded corners of the market, including U.S. equities, stocks in Asian developed markets, and — to a smaller degree — European markets, according to the Goldman Sachs note.
Trading conditions had already become difficult in late June and into early July due to sharp swings in chipmaker stocks. The situation was made worse by high levels of leverage among retail investors, particularly in Korean markets, which magnified stock price movements considerably.
Quant funds accounted for roughly 10% of the largest hedge funds in 2025, according to figures from S&P Global.
Financial regulators, including those at the Bank of England, the Bank of Japan, and the Bank for International Settlements, have been raising concerns for some time about elevated valuations — especially in the technology sector. Shares in companies such as Micron Technology, Intel, and Marvell Technology have climbed roughly 200% in 2026 alone. Regulators have also expressed worry that hedge funds’ growing influence in financial markets is contributing to increased volatility and risk.
Goldman Sachs also reported that fundamental managers — the stock-picking variety of hedge fund — fell 2.2% over the same stretch after getting tangled up in crowded technology trades. Still, that group remains up 15.5% on the year.
These stock-pickers have “aggressively” pulled back from trades tied to artificial intelligence, most of which had previously been big winners, Goldman Sachs said. That widespread exit has pushed hedge fund leverage to its lowest point in the past year, reflecting just how dramatically trading activity has shifted.
