Quant hedge funds started 2026 with significant losses, experiencing their worst 10-day period since October 2025. According to Goldman Sachs Group Inc. prime brokerage data, systematic long-short equity managers lost approximately 1% in early January, primarily concentrated in US equities. UBS provided an even more dire estimate, reporting that US-focused quant funds were down around 2.8% in the first two weeks of 2026 alone.
Several prominent quant funds faced substantial drawdowns. Renaissance Technologies saw its strategy drop roughly 4% by early January, while Schonfeld's quant operation declined approximately 3.9% through mid-month. Engineers Gate experienced an even steeper fall, around 6%. These losses were largely attributed to "crowded trades" and violent reversals in factor-based positioning, as well as one-day deleveraging events, identified by UBS as the sharpest since December 22, 2025.
The struggles in early 2026 echo similar challenges faced by quant equity managers in the summer of 2025, when average losses approximated 4.2%. That earlier episode was also driven by momentum unwinds and a sharp rally in lower-quality stocks. The "momentum trade" — a strategy of chasing winners and dumping losers — has notably suffered, experiencing its second-steepest drop since the aftermath of the 2020 pandemic in February 2026, surpassing last year's DeepSeek selloff and the April tariff swoon.
The recent downturn in momentum strategies, which had been a winning approach for years, is being viewed as a significant market shift. As of July 1, 2026, the momentum factor, which was up 28% year-to-date, was "starting to fade," as noted by Bloomberg's Natalia Kniazhevich. Institutional investors appear to be rotating out of growth and tech names into cyclicals, small caps, and European equities, while retail traders continue to support AI leaders. This shift is also supported by record retail activity concentrated in AI and hyperscale sectors. The Invesco QQQ Trust (NASDAQ:QQQ) was up 16% year-to-date but had slipped 4.5% over the past month, contrasting with small caps, which were outperforming, with the iShares Russell 2000 ETF (NYSEARCA:IWM) up 20.89% year-to-date and 2.03% higher over the last month.
