Quant hedge funds have suffered their weakest spell since August as artificial intelligence related selloffs and crowded trades cut sharply into their gains. These systematic managers, who rely on algorithms to capture market trends, lost nearly 25% of their year to date profits in late June and early July. Their overall returns fell to 10.8% from 14.4% recorded on June 22.
The reversal came as chipmaker shares swung wildly and retail leverage in Korean markets added to volatility. Quant strategies across United States equities, Asian developed markets and European stocks all faced losses. Fundamental managers, who depend on stock picking, also slipped by 2.2% in the same period but remain up 15.5% for the year. Many had already reduced exposure to artificial intelligence trades that earlier boosted their performance.
Regulators including the Bank of England, Bank of Japan and the Bank for International Settlements have warned about stretched valuations in technology. Shares of Micron, Intel and Marvell have surged close to 200% in 2026, raising concerns of overheating.
Quant funds represent about 10% of the largest hedge funds worldwide. Their leverage has now dropped to the lowest level in a year, showing how managers are pulling back after the sudden wave of losses.
