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Goldman Sachs Reports Record Hedge Fund Underperformance Against S&P 500 in July
Finance · Investment Managers · cnbc · 2026-08-21
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Hedge funds experienced their most significant monthly underperformance relative to the S&P 500 in two decades as managers aggressively reduced their AI exposure.
What Happened
Historic Performance Gap: Goldman Sachs analysts revealed that the most popular long positions held by hedge funds saw their worst monthly underperformance against the S&P 500 in over 20 years. This sharp divergence occurred as the momentum behind artificial intelligence stocks began to unwind during the month of July.
Portfolio De-grossing Trends: The report highlighted one of the most intense periods of hedge fund de-grossing observed in the last ten years. Managers significantly trimmed their stakes in mega-cap companies and various semiconductor firms, marking a pivot away from the AI-heavy strategies that defined the previous quarter.
Shift in AI Sentiment: While hedge funds entered the second quarter with record-high portfolio turnover and a heavy concentration in AI, they have recently begun to diversify their holdings. Despite this tactical retreat, current levels of gross and net leverage remain above historical averages, indicating that funds are still maintaining significant market exposure.
Year-to-Date Performance: Despite the volatility experienced in July, US equity long/short hedge funds have managed to generate a 10% return through the middle of August. This resilience suggests that while the AI trade has faced headwinds, overall fund performance remains positive for the year thus far.