JPMorgan says hedge funds hit by worst drawdown since April
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HEDGE funds are experiencing the biggest drawdown since the Liberation Day tariff turmoil, as unwinds in crowded trades punish the fast-money cohort, according to JPMorgan Chase & Co. strategists.
Since the start of the Iran war, quants like commodity trading advisers have been hit by their worst stretch in almost a year, the strategists said in a note on Wednesday.
Equity long-short hedge funds have also posted heavy losses due to their overweight positions in European and Korean markets and their underweight in software names, according to the bank.
CTAs typically ride the momentum of futures markets of all stripes to harness the wisdom of the investing crowd. The bank cites data kept by HFR which shows that systematic diversified CTA funds have seen nearly a 4 per cent loss in March.
Another index compiled by Societe Generale SA shows the strategy is down more than 2 per cent so far this month. Trend-following funds come in all shapes and sizes with various allocation horizons.
The spiraling conflict in the Middle East has wiped out trillions of dollars in global equity-market value over the past two weeks while catapulting oil above US$100 per barrel for the first time since 2022.
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Some of the world’s biggest hedge funds ranging from Balyasny Asset Management and Citadel to Millennium Management suffered declines last week, according to Bloomberg reporting.
Among other measures, the HFRX Equity Hedge Index, which JPMorgan analysts use to track losses for long-short funds, is on track for a 3 per cent drop this month.
This comes as hedge funds have been boosting short positions in equity exchange-traded funds by 8.3 per cent in the week through March 6, according to data compiled by Goldman Sachs Group Inc.’s prime brokerage unit.
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From here, looking across asset classes, stocks appear more vulnerable than bonds, according to JPMorgan.
“Going forward, equities look more vulnerable than bonds from a positioning perspective,” the strategists led by Nikolaos Panigirtzoglou wrote. “Previous dollar shorts, which were heavier in EM currencies, appear to have been covered.” BLOOMBERG
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