Staff Reporter
Hedge funds that focus on stock picking and multi-strategy investments have seen about half of their average yearly gains evaporate following a tech-driven selloff on Thursday, according to a report from Goldman Sachs.
This week, the sharp decline in stock prices hit hard in sectors where hedge funds had significant long positions, particularly in technology, media, and telecommunications. A note from JPMorgan on Wednesday indicated that global hedge funds were largely invested in these stocks before the downturn. Long positions anticipate an increase in asset values, while short positions expect a decline.
The technology sector has emerged as the second-worst performer in the S&P 500 this year, down roughly 8%, trailing only consumer discretionary stocks, which have dropped just over 9%.
Goldman Sachs noted in a communication to clients, which Reuters reviewed on Friday, that hedge funds found themselves entangled in crowded trades that led to significant selloffs. As a result, those focused on stock selection have achieved an average return of just 1% so far this year.
U.S. stock pickers finished down 1.4% on Thursday, bringing their year-to-date performance to a negative 0.5% for 2025, according to a recent report. Hedge funds employing various trading strategies also had what was described as “a challenging day,” the Goldman Sachs note indicated.
These hedge funds, which have consistently generated positive returns over the past three years, have struggled this year, losing money on 18 out of 29 days since January 27. Goldman Sachs noted that this negative trend represents one of the worst performances for this type of hedge fund in its history.
Multi-strategy hedge funds are designed to balance losses from one strategy with gains from another. However, February saw some of the largest of these funds deliver mixed results. Millennium Management reported a 1.3% decline in February, bringing its year-to-date returns to a negative 0.8%, according to sources familiar with the situation. Bloomberg was the first to report these results.
