Systematic hedge funds and traditional stock-picking managers recorded their weakest trading performance in nearly a year due to crowded artificial intelligence trades.
Systematic hedge funds and traditional stock-picking managers have recorded their weakest trading performance in nearly a year as investors retreated from crowded artificial intelligence and technology trades. Systematic managers, which rely on algorithmic strategies, surrendered roughly one-quarter of their year-to-date gains, with returns falling to 10.8% for the year. The decline was driven by bearish positions against heavily traded areas, including U.S. equities and developed Asian markets. Sharp swings in semiconductor stocks during late June and early July, combined with elevated leverage in South Korea, further intensified price fluctuations. In response to weakening risk appetite, fundamental hedge funds declined 2.2% over the same period. These managers have aggressively exited AI-related positions that were previously their strongest performers. This broad reduction in exposure has pushed hedge fund leverage to its lowest level in the past year. Financial regulators, including the Bank of England and the Bank of Japan, have warned that these high valuations and increased activity could contribute to greater systemic risk.