Stock Markets July 9, 2026 09:52 AM

AI-driven selloff erases a quarter of quant funds' year-to-date gains

Systematic managers hit by crowded trades and chip-stock volatility see returns slip as hedge fund leverage falls to a one-year low

By Sofia Navarro
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Systematic or quant hedge funds have relinquished roughly 25% of their year-to-date gains after recent market turbulence exposed crowded positions. Goldman Sachs said in a note dated Wednesday that algorithmic managers' returns fell from 14.4% on June 22 to 10.8% for the year, with losses concentrated in U.S. equities, developed Asian stocks and, to a lesser degree, Europe. Volatility in semiconductor shares and high retail leverage in Korean markets amplified the moves, while traditional stockpickers also pared back AI-related trades.

AI-driven selloff erases a quarter of quant funds' year-to-date gains
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Key Points

  • Systematic managers (quant funds) have relinquished about 25% of their year-to-date gains, with returns falling from 14.4% on June 22 to 10.8% for the year, according to Goldman Sachs.
  • Losses were concentrated in crowded bets against U.S. equities, Asian developed-market stocks and, to a lesser extent, Europe, with semiconductor share volatility and high retail leverage in Korea amplifying moves.
  • Fundamental, stockpicking managers were down 2.2% over the same period but remain up 15.5% year-to-date; many have aggressively exited AI-related trades that had been winners.

Overview

Goldman Sachs reported in a note dated Wednesday that systematic managers - commonly referred to as quant funds because they rely on algorithms to trade market trends - have given back roughly one quarter of their year-to-date returns amid recent market turbulence. As of the latest update in that note, returns for this group stand at 10.8% for the year, down from 14.4% on June 22.

Where losses came from

The bank said the declines were driven by positions against some of the most crowded areas of the market: U.S. equities, Asian developed-market stocks and, to a lesser extent, European equities. The trading backdrop was further complicated by large swings in shares of semiconductor companies in late June and into early July. Goldman highlighted that elevated levels of retail investor leverage, particularly in Korean markets, intensified many of those price moves.

Scale and market makeup

Quant strategies accounted for roughly 10% of the largest hedge funds in 2025, according to S&P Global data cited in the note. Regulators - including officials at the Bank of England, the Bank of Japan and the Bank for International Settlements - have repeatedly warned about stretched valuations, especially in the technology sector. Goldman pointed out that shares of companies such as Micron Technology, Intel and Marvell Technology have climbed by about 200% in 2026.

Performance among other hedge fund groups

Goldman said fundamental managers, or stockpicking funds, were down 2.2% over the same recent stretch, reflecting their exposure to crowded technology-sector trades. Despite that shorter-term decline, fundamental managers remain up 15.5% for the year. The bank also noted that these stockpickers have "aggressively" exited AI-related trades that had previously been sources of strong gains.

Leverage and risk posture

The mass unwinding of AI-related positions has pushed overall hedge fund leverage to its lowest level in the past year, a gauge of how extensively funds had been positioning themselves. Goldman framed this reduction in leverage as indicative of the scale and rapidity of the recent repositioning across strategies.

Market markers cited

The note included specific moves in semiconductor-related names, listing intraday percentage changes for several chipmakers: INTC +4.69%, MRVL +6.67%, MU +8.54%.


This report synthesizes the observations and figures contained in the Goldman Sachs note dated Wednesday. It reflects the bank's assessment of recent returns, the sectors where losses were concentrated, and the broader effects on hedge fund leverage and positioning.

Risks

  • Concentrated exposures in U.S. and developed Asian equities - Crowded trades in these regions can amplify losses for quant and fundamental managers.
  • Elevated retail leverage in specific markets - High household or retail leverage, noted in Korean markets, can intensify price swings in affected sectors such as semiconductors.
  • Compressed hedge fund leverage - Rapid deleveraging to the lowest levels in a year reflects heightened risk aversion and could reduce market liquidity if repositioning continues.

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