Trend-following hedge funds endured their worst weekly performance in two years last week, pressured by widespread market anxiety over the eventual financial returns on heavy artificial intelligence investments. According to a Goldman Sachs note, the shifting sentiment ignited volatility across both equity and fixed-income markets.
The Nasdaq 100 index tumbled 5.5% over the course of the week, marking its sharpest weekly drop since April 2025, a period disrupted by U.S. President Donald Trump’s Liberation Day tariffs. The equities downturn was driven in part by a 10% weekly slide in shares of Meta, which posted strong financial earnings but signaled a need to raise additional capital to fund its expanding AI infrastructure.
Bond markets experienced heightened turbulence as investors rotated out of more fragile sovereign debt, such as French bonds, and sought the relative safety of U.S. Treasuries.
Systematic long-short hedge funds, which deploy algorithms designed to ride market trends until momentum shifts, dropped 2% for the week in what marked their worst weekly drawdown since 2024. Meanwhile, fundamental long-short strategies fell an additional 1.1%.
Despite the weekly setbacks, fundamental long-short strategies remained up 8.8% for the year to date despite falling 3.8% over the month of October. Systematic strategies registered a 1.1% decline for October while maintaining an 18.7% gain for the year.
Single stocks experienced the heaviest de-grossing activity, reflecting a broad reduction in risk exposure, at levels not seen since late July. U.S. equities faced net selling for the third consecutive week and in four of the past five weeks.
Goldman Sachs prime brokerage desk reported that investors offloaded $20 billion in technology stocks over a two-week span, approaching the major market unwind in July that saw $23 billion in tech equity sales.
