LONDON, Aug 4 (Reuters) – Global hedge funds gave up almost 3% of their gains during July due to the unwinding of technology-related trades but are still up around 8% for the year across all strategies, JPMorgan said in a note seen by Reuters.
As the Iran war continued, a spike in crude oil prices upset markets, sparking a selloff in chip stocks and a sector rout in Asia in July, while an index of U.S. tech stocks fell more than 7%.
Trading losses stemmed from crowded bets on technology stocks which, when markets turned sour, prevented speculators from exiting at more profitable levels, JPMorgan said in the note, which was published on Saturday.
Leverage levels started and ended July at the same values, but wild swings occurred during the month, JPMorgan said, adding that on a five-year basis, hedge fund borrowing remains near all-time highs, but is below the peak of the last 12 months.
Multi-strategy funds fared better than others, ending July with negative 2.2% returns, while stock pickers in the Asia-Pacific region averaged a negative 9.4% return, the bank said.
Global quantitative equity hedge funds that trade less on the economic health of companies but more on their stock market performance, averaged a negative 5% for the month.
JPMorgan’s note identified quant hedge funds as the most leveraged strategy it tracked, with an assumed leverage of 450%.
Hedge funds ditching U.S. stocks in July and then re-buying them in September is becoming a pattern, JPMorgan added.
Since 2018, hedge funds have tended to dump unprofitable stock trades in July and this year’s “de-grossing” is more pronounced than in any year apart from 2020 and 2022, it said.
In a separate note, Goldman Sachs said global stock pickers suffered their second-worst monthly losses in the last four years in July, while Asia-based stock pickers had their worst month ever recorded by the bank.
MOMENTUM
Momentum trades, which are based on the expectation that past winners will continue to outperform and losers to underperform, were behind losses in July, JPMorgan said.
Hedge fund positioning in tech stocks over a long-term perspective is still relatively high and trade sizes were bigger too, JPMorgan said, without giving the time frame.
(Reporting by Nell Mackenzie and Svea Herbst-Bayliss; Additional reporting by Summer Zhen; Editing by Amanda Cooper and Alexander Smith)
