Hedge funds that rely on stock picking based on the economic fundamentals of companies suffered billions of dollars in losses on Monday, following a sudden collapse in global technology stocks. This sharp decline was triggered by the emergence of a low-cost Chinese AI model, causing a widespread sell-off. According to a trading update from Goldman Sachs and industry figures on Tuesday.
Sharp decline in hedge funds due to tech stock crash
Hedge funds that rely on analyzing company fundamentals fell by 1.1% on Monday, affected by the market downturn, according to the trading desk of Goldman Sachs, representing a significant daily decline for funds that typically return 15% in a good year like 2024.
Goldman Sachs does not disclose specific figures for the size of the hedge funds it tracks, but data from Barclay Hedge suggests that the losses from Monday's sell-off could reach billions of dollars.
Decline of the "Magnificent 7" raises concerns among investors
Bank of America reported that many hedge funds were betting on the rise of major tech stocks such as Nvidia, Apple, and Microsoft, but suffered huge losses after these stocks declined. Nvidia's stock alone lost 17% of its market value on Monday, resulting in the company losing about $600 billion, marking the largest single-day market cap drop for any company ever.
Intense selling by hedge funds
Goldman Sachs noted that sell-offs in U.S. stocks on Monday were the largest in the last six months and among the highest levels in the past five years. Furthermore, hedge funds exited tech stocks for the third consecutive session due to rising risks surrounding long positions.
In contrast, systematic funds relying on algorithmic trading gained 1.7% on Monday, as they reduced their bets against high-risk stocks, allowing them to avoid the losses that affected their competitors.
