Hedge funds lost nearly 3% of the gains they had accumulated in 2026 during July as a wave of selling in technology-related positions forced managers to pare back exposures, JPMorgan said in a client note. Even with that pullback, the bank reported that hedge funds are still roughly 8% higher year-to-date across all strategies.
The bank linked the July reversal to market upheaval after a sharp rise in crude oil prices tied to the Iran war, which contributed to a broad selloff in chip stocks and a sector-wide rout in Asian markets. An index of US technology shares fell by more than 7% during the month, amplifying losses for funds with large technology allocations.
JPMorgan said trading losses were concentrated among crowded bets on technology stocks. When sentiment turned, those crowded positions prevented many speculators from exiting at more favorable prices, worsening the drawdowns for managers exposed to the sector.
On leverage, the bank observed that borrowing levels began and ended July at similar readings, but the month featured pronounced intra-month swings. Over a five-year horizon, hedge fund borrowing remains close to its highest levels, though it is below the peak seen in the last 12 months, JPMorgan added.
Performance varied notably by strategy and region. Multi-strategy funds recorded a smaller monthly decline, finishing July down 2.2%. By contrast, stock pickers in the Asia-Pacific region averaged a much larger drop, posting a negative 9.4% return for the month. Global quantitative equity hedge funds - which trade predominantly on stock market behavior rather than company fundamentals - averaged a negative 5% in July.
JPMorgan singled out quant strategies as the most leveraged among those it monitors, assigning an assumed leverage level of 450% to that group. The bank also flagged a recurring pattern: hedge funds tend to sell US equities in July and then repurchase them in September, a behavior it said is becoming more common.
Looking at seasonal tendencies, JPMorgan noted that since 2018 hedge funds have often dumped unprofitable stock trades in July. This year’s reduction in gross exposure - described as "de-grossing" - was more pronounced than in any year except 2020 and 2022, according to the note.
In a separate commentary, Goldman Sachs reported that global stock pickers experienced their second-worst monthly losses over the past four years in July, and that Asia-based stock pickers endured their worst month on record for the bank.
JPMorgan attributed a substantial portion of July’s losses to momentum trades - strategies that assume recent winners will keep outperforming while recent losers will continue to lag. The bank said that momentum-driven selling contributed to the rapid deterioration in returns during the month.
Finally, JPMorgan observed that hedge fund positioning in technology stocks remains relatively elevated on a long-term view, and that trade sizes were larger as well, though the bank did not specify the exact time frame for that assessment.