Hedge funds experience their largest drawdown since April last year, especially in "long-short equity strategies" with high holdings in Europe and South Korea.

Hedge funds are experiencing their worst drawdown since last year’s tariff turmoil, with concentrated liquidations of crowded trades causing heavy losses for this fast-money group.

According to a report released by JPMorgan strategists on Wednesday, since the outbreak of Middle East conflicts, quantitative funds such as Commodity Trading Advisors (CTAs) have faced their worst performance in nearly a year. Meanwhile, equity long-short hedge funds, heavily invested in European and Korean markets and underweight in software sectors, also recorded significant losses.

Top hedge funds like Citadel, Millennium, and Point72 collectively suffered huge losses in a single week, with the worst losing up to $1.5 billion, nearly wiping out their year-to-date profits in just one week.

The ongoing escalation of the Middle East situation has wiped out trillions of dollars in global stock market value over the past two weeks and pushed oil prices above $100 per barrel for the first time since 2022. JPMorgan strategists believe that, from a positioning perspective, equities are currently more vulnerable than bonds.

Multi-strategy funds are under pressure across the board, with stock positions being the biggest drag

CTA funds typically aim to capture market trends by tracking momentum across various futures markets.

JPMorgan cites HFR data showing that systematic diversified CTA funds have lost nearly 4% since March; another index compiled by Société Générale indicates that this strategy has fallen more than 2% this month.

Equity long-short strategies are also under significant pressure. JPMorgan’s HFRX Equity Hedge Index, which tracks the performance of long-short funds, is expected to decline by 3% this month. Data from Goldman Sachs’ prime brokerage division shows that as of the week ending March 6, hedge funds increased their short positions in stock ETFs by 8.3%, indicating rising market risk aversion.

Team led by JPMorgan strategist Nikolaos Panigirtzoglou wrote in the report that looking ahead, from a positioning perspective, equities are more vulnerable than bonds. Previously, dollar short positions focused on emerging market currencies have largely been closed out.

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