The 6% solution is gone: How overcrowded AI-powered trading has erased investors’ advantage

A new academic study finds that the early performance edge enjoyed by AI-driven hedge funds has largely disappeared as AI adoption spread across the industry. Analyzing hedge funds that used AI for predictive modeling between 2006 and 2024, researchers found an early annual outperformance near 6%, but that edge faded and, since about 2017, AI funds show no statistically distinguishable advantage over non-AI peers. The piece argues this is unsurprising given the arithmetic of active management and transaction costs, and notes that actively managed AI ETFs on average trail a basic S&P 500 index fund. Market implication: broad, low-cost index exposure remains the preferred strategy for most investors.