Goldman says hedge funds suffered worst underperformance vs S&P 500 in July in more than 20 years of data

Goldman Sachs said hedge funds had their worst month of relative underperformance versus the S&P 500 in more than 20 years in July, as AI leadership unwound and managers rapidly reduced exposure. Goldman described the month as one of the sharpest hedge-fund de-grossing episodes in the past decade, with funds trimming positions in semiconductors and many mega-cap AI names. The report suggests crowded AI trades were a major driver of hedge fund weakness, even though US equity long/short hedge funds are still up 10% through mid-August. The broader market takeaway is that the AI trade remains influential, but hedge funds are now diversifying and pulling back leverage after Q2 highs, which could dampen near-term demand for some of the most owned tech and semiconductor stocks.