Trend-following hedge funds suffer worst week since 2024 amid tech sell-off

Trend-following hedge funds endured their most severe weekly decline in two years, as a significant sell-off in technology equities and increased instability in the bond market led to substantial losses, according to a report by Reuters quoting Goldman Sachs. Systematic long/short hedge funds experienced their steepest weekly drop since 2024, with a 2% decrease, while fundamental long/short strategies suffered a 1.1% decline.

The downturn occurred as the Nasdaq 100 plummeted 5.5%, marking the largest weekly decline since April 2025, driven by heightened apprehension about returns on significant artificial intelligence investments. Meta Platforms saw a 10% drop in share price, even after reporting robust earnings, following the company's announcement that it would require additional capital to finance AI initiatives.

Fundamental long/short strategies have decreased by 3.8% in October but have still posted a 8.8% gain year-to-date. Systematic strategies, however, have declined by 1.1% this month, despite generating returns of 18.7% in 2026. This volatility has induced hedge funds to decrease leverage and reduce equity exposure, with single-stock positions witnessing their most considerable reduction in gross exposure since late July.

Goldman Sachs' prime brokerage desk reported $20 billion in technology stock sales over the past two weeks, approaching the $23 billion recorded during July's major unwinding. US equities have now been net sold for three consecutive weeks, and four of the past five, demonstrating the ongoing retreat from concentrated technology positions as managers reassess risk exposure.