By Nell Mackenzie
LONDON (Reuters) – Hedge fund stock-pickers lost billions of dollars on Monday in a rout in global technology shares sparked by the emergence of a low-cost Chinese artificial intelligence model, according to a Goldman Sachs trading update and industry figures on Tuesday.
Hedge funds that pick stocks based on company fundamentals rather than using algorithms to trade systematically were down 1.1% Monday, as markets sank, Goldman’s trading desk said, a significant one-day drop for funds that in a good year like 2024 make 15%.
Goldman Sachs does not reveal dollar figures for the size of the hedge funds its teams track, but data from hedge fund research group BarclayHedge suggest the losses from Monday’s sell-off could tally into the billions.
Assets under management for hedge funds that take long and short positions – bets on an asset either increasing or decreasing in value – reached $176.7 billion at the end of the third quarter of 2024, according to BarclayHedge.
Long-only hedge fund manager assets reached $672.9 billion in the same period, their website said.
Stock-picking hedge fund returns are up 1.5% for the year so far, said the bank. These are hedge fund managers who invest based on the economic health of markets and companies, rather than charting price movements.
Many of these hedge funds had crowded into the same bets that the biggest tech stocks would increase in value.
While this pile-on has fallen from its peak in 2023, concentration in these trades before the rout was still high compared to pre-pandemic levels, Bank of America said a separate note on Friday.
Big global investors listed hedge funds crowding into so-called “Magnificent 7” trades as a top concern, said a BofA note on Friday. This group of the largest U.S. companies by market value counts Nvidia, Apple and Microsoft among its ranks.
Nvidia slumped 17% on Monday, which cost the company almost $600 billion in market value – the largest single-day drop in market capitalisation for any company on record.
Monday’s selling in U.S. single stocks was the largest Goldman Sachs had seen in roughly six months and in some of the highest levels of the past five years, the bank said in its note.
Hedge funds fled tech stocks for the third straight session on Monday, squeezed out of long positions that had become too risky to hold, the bank said.
Systematic managers whose algorithms read and trade on charts and market volumes finished Monday up 1.7% having started the week largely short markets and also having dropped bets against riskier, or more volatile, stocks, it said.
(Reporting by Nell Mackenzie; Editing by Amanda Cooper and Chizu Nomiyama)
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