AI Trade Reversal Hits Systematic Quant Funds

Systematic quantitative hedge funds reported significant losses after a sharp reversal in artificial intelligence-related trades in late June and early July, according to a Goldman Sachs client note. The strategies surrendered roughly a quarter of gains and year-to-date returns fell to 10.8%, down from 14.4% in late June.

Losses were concentrated in heavily held positions across US equities, developed Asian markets and, to a lesser degree, European stocks. Technology shares, particularly semiconductor companies that had been strong performers earlier in the year, experienced large price swings that drove the correction.

Market moves were amplified in parts of Asia. South Korea saw larger price swings as elevated retail investor leverage increased volatility in semiconductor and other tech-related names. Funds with similar large positions in those names recorded heavier losses.

Goldman Sachs’s note estimated fundamental equity hedge funds declined about 2.2% over the same period after many had crowded technology positions. Discretionary stock-picking managers recorded year-to-date returns of about 15.5%.

Many fundamental managers cut exposure to AI-related investments and unwound positions that had been major contributors to earlier gains. Hedge fund leverage fell to its lowest level in the past year as managers reduced overall risk.

Quantitative strategies made up roughly 10% of the world’s largest hedge funds in 2025, according to S&P Global data. Regulators including the Bank of England, the Bank of Japan and the Bank for International Settlements have warned that concentrated positioning and higher leverage can increase market stress during sharp price moves.

Traders and risk managers described rapid, model-driven flows that pushed capital into the same winners earlier in the year. As volatility rose, those algorithms flipped and forced quick deleveraging, producing concentrated selling in previously strong performers.

The client note stated: ‘Losses were concentrated in heavily owned positions across US equities, developed Asian markets and, to a lesser degree, European stocks.’