Hedge Funds Retreat as AI Selloff Hits Tech Strategies
Hedge funds posted their first monthly loss since March as a reversal in artificial-intelligence stocks punished technology-focused managers and exposed sharp differences across strategies.
The HFRI Fund Weighted Composite Index declined 1.1% in July, reducing its 2026 gain to 6.2%, according to Hedge Fund Research. The pullback followed a 6.4% second-quarter return, the industry’s strongest quarterly performance since late 2020.
Technology hedge funds suffered their largest decline since the HFR indices were launched in 2008. The HFRI Equity Hedge: Technology Index dropped 7%, reversing part of its 22.3% combined advance during April and May.
The selloff reflected weakening AI-related shares and the unwinding of crowded technology and momentum positions. Equity-hedge and event-driven strategies led the broader decline.
“The macroeconomic outlook for H2 presents a mixed picture,” HFR President Kenneth Heinz said, citing shifting AI expectations, geopolitical risks, supply-chain pressures and interest-rate uncertainty.
Relative-value strategies provided some protection. The HFRI Relative Value Index gained 0.2%, led by a 2.1% advance for yield-alternative strategies. That subindex remained HFR’s top performer for 2026, returning 18.75% through July.
Macro funds declined 0.3% as losses among systematic commodity-trading advisers offset a 2.2% gain for commodity strategies. The HFR Cryptocurrency Index rose an estimated 2.4%, while multi-manager and pod-shop funds fell 0.4%.
Manager dispersion widened substantially. The top 10% of funds gained an average of 7.6%, while the bottom decile lost 12.5%, producing a 20.1-percentage-point spread, compared with 16.7 points in June.
Only about 45% of hedge funds generated positive returns in July, illustrating how exposure selection, leverage and risk controls drove outcomes during the technology reversal.
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