The sharp volatility in US stocks during July did not weaken hedge funds' conviction in AI-related trades. According to the latest Goldman Sachs report, despite significant deleveraging and position clearing, hedge funds continue to maintain heavy positions in large-cap technology stocks, with AI still serving as the core investment theme.
Goldman Sachs' monitoring of nearly 1,000 hedge funds with a combined $5.4 trillion in long-short equity exposure shows that as of August 19, hedge funds have still achieved an overall return of 10% year-to-date. However, the sharp correction in July also marked one of the worst single months for the industry relative to the S&P 500 in nearly two decades, exposing the fragility of crowded trades.
Yet capital has not fled in large numbers. Goldman Sachs data shows that Amazon.com has been the most popular stock among hedge funds for the 11th consecutive quarter, and among the top ten most favored stocks, nine are related to the AI theme.
Meanwhile, hedge funds have begun to diversify risk by reducing overall leverage and expanding sector allocations. Net positioning in the healthcare, financial, and energy sectors has all risen to decade highs, indicating that capital is adding defensive space beyond the AI theme.
July's aggressive deleveraging hit popular AI positions hardest
Ben Snider, head of Goldman Sachs' portfolio strategy research team, stated that July was "one of the most intense periods of hedge fund deleveraging in the past decade."
This adjustment was not simply a reduction in net exposure, but a contraction of the entire trading book, with funds reducing not only directional bets but also compressing overall position sizes simultaneously.
The weakening of the semiconductor sector, coupled with the concentrated earnings releases from hyperscale cloud computing companies, were important factors triggering the position clearing. The market began to question whether the high growth in AI capital expenditures could be sustained, putting pressure on previously strong AI trades.
Goldman Sachs noted that the best-performing AI-related positions in the second quarter were precisely the ones funds added to most during that period, and these subsequently suffered the deepest declines in the July correction. This means that the more concentrated the capital in popular trades, the more prone they are to stampedes when market volatility amplifies.
Amazon tops the list for 11 consecutive quarters, with nine of the top ten popular stocks tied to AI
Despite the dramatic market fluctuations in July, the overall investment direction of hedge funds has not undergone a fundamental shift, and their preference for large-cap technology stocks remains solid.
According to Goldman Sachs' latest data, Amazon.com has retained its position as the most popular stock for the 11th consecutive quarter, and among the top ten most favored holdings, nine are closely related to the artificial intelligence theme, with Visa being the sole exception. This indicates that AI remains the most central investment theme at present.
At the same time, capital is extending its布局 along the AI industry chain. Second-quarter data shows that the popularity of data centers, AI infrastructure, and related power equipment companies has increased significantly, reflecting institutions' continued exploration of structural opportunities across computing power and application segments.
Additionally, some growth stocks that previously did not rank in the top 50 of popular holdings have begun to attract attention, spanning software, e-commerce, media, and aviation sectors. This suggests that capital is not abandoning the growth style but is moderately broadening its allocation scope beyond the AI theme.
Looking at overall positions, although hedge funds' net leverage has declined somewhat, their total market exposure remains above historical averages. Goldman Sachs pointed out that ETF long positions have risen to 5.6% of total exposure, the highest level since the 2008 global financial crisis. Meanwhile, net tilt indicators for the healthcare, financial, and energy sectors have all risen to decade highs, showing that capital is systematically diversifying risk into non-technology sectors.
In summary, the July market turmoil has more likely prompted hedge funds to optimize their portfolio structures rather than reverse their investment direction. AI remains the overwhelming main theme, but facing highly crowded technology stock trades, institutions are balancing portfolio risk by increasing allocations to other sectors. The overall strategy, while maintaining core themes, is exhibiting more pronounced diversification and defensive characteristics.
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