Hedge Funds Lose 3% in July Amid Tech Sell-off

Global hedge funds saw their gains diminish by nearly 3% in July, a downturn attributed to the liquidation of technology-focused investments. Market turbulence, exacerbated by rising crude oil prices, led to a broad sell-off impacting chip stocks and Asian markets, with U.S. tech stocks falling over 7% last month.

These trading losses were largely due to concentrated positions in technology stocks. As market sentiment soured, speculators struggled to exit these positions profitably. While leverage levels stabilized by month-end, significant volatility characterized July. Importantly, borrowing levels for hedge funds remain historically high on a five-year scale, though below the peak of the past twelve months.

Multi-strategy funds demonstrated better performance, concluding July with a -2.2% return. In contrast, equity hedge funds employing quantitative strategies, which focus on stock performance rather than economic fundamentals, averaged a -5% return for July and were noted as the most leveraged strategy tracked.

Hedge funds' pattern of divesting and then reacquiring U.S. stocks in subsequent months, particularly ditching in July and buying back in September, has become notable. This year's "de-grossing" activity, excluding 2020 and 2022, was more pronounced than in any other year since 2018.

In parallel, global stock pickers experienced their second-worst monthly losses in four years during July. Asia-based stock pickers, specifically, recorded their worst performance ever documented by the bank.