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Posted July 9, 2026 at 10:15 am
Goldman Sachs says systematic managers have given back a quarter of year-to-date gains as crowded tech bets reversed and leverage fell to a one-year low.
A sudden pullback in AI-linked stocks is giving quant hedge funds their worst run since August, as a crowded tech trade reverses and leverage drops.
Goldman Sachs, a US investment bank, said in a note dated Wednesday that systematic managers – quant funds that use algorithms to follow trends and control risk – have given back about a quarter of their year-to-date gains as volatility jumped in late June and early July. They’re still up 10.8% this year, but that’s down from 14.4% on June 22nd, with the pain centered in US stocks and developed Asian markets, and smaller losses in Europe. The trigger was sharp swings in chipmakers, which tend to sit at the heart of the AI trade and show up in lots of similar quant portfolios at once. Goldman also flagged Korea, where heavy use of borrowed money by retail traders can magnify moves, adding to the whipsaw. As both quant and fundamental hedge funds cut exposure, overall hedge fund leverage has fallen to its lowest level in the past year, echoing regulators’ concerns that stretched tech valuations can turn normal market moves into bigger ones.
For markets: Goldman says hedge fund leverage is at a one-year low.
Lower leverage isn’t just a scoreboard item: it can change how prices move day to day. Many systematic funds target a set level of portfolio risk, so when volatility rises, their models often force them to shrink positions, effectively turning a market wobble into more selling. Because so many of these portfolios were leaning into the same AI and chipmaker winners, that selling pressure can concentrate in a few crowded names and indexes, keeping them jumpy even if the underlying business news hasn’t changed much. And in places where investors are already using more borrowed money – like the Korean market Goldman highlighted – those swings can be larger and faster until volatility cools and risk limits let funds rebuild exposure.
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Originally Posted July 9, 2026 – AI Trade Unwind Hands Quant Funds Their Worst Run Since August
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