Hedge funds

20 August 2026, 20:30 UTC Chief Investment Office GWM Investment Research

Hedge funds CIO View: Hedge funds Karim Cherif, Head Alternative Investments, UBS Switzerland AG Tony Petrov, Alternative Investments Strategist, UBS Switzerland AG

• July brought a more challenging market environment, marked by sharp reversals in AI-related and momentum trades, renewed geopolitical tensions, and higher energy prices. Global equities were broadly flat, while global bonds declined around 1%. The average hedge fund fell around 1% over the month (HFR estimates).

• Less directional strategies proved more resilient, with equity market neutral and relative value managers gaining around 0.6% and 0.2%, Source: UBS respectively. More directional exposures were weaker, with equity hedge falling 1.8% and event driven declining 0.7%. Meanwhile, macro managers recorded more modest losses as reversals across rates and other established trends weighed on performance.

• The month highlighted the value of differentiated return drivers and active risk management. Less directional and idiosyncratic strategies provided resilience amid abrupt factor reversals and crowded position unwinds, reinforcing the role of hedge funds as a flexible source of alpha and portfolio diversification.

July recap July brought a more challenging market environment as a sharp reversal in AI-related and momentum trades disrupted trends that supported risk assets earlier in the year. Global equities were broadly flat, but resilient headline indexes masked significant dispersion beneath the surface. Technology stocks came under pressure as investors reassessed AI capital spending, monetization prospects, and elevated positioning, triggering deleveraging and factor rotation. Emerging markets underperformed (-3.0%) developed markets (0.1%), largely because of weakness in Asian tech markets, while a rotation into less crowded sectors supported parts of Europe and the broader US equity market.

Renewed geopolitical tensions in the Middle East pushed energy prices sharply higher and contributed to a broad rise in global bond yields. Commodities gained strongly, led by energy, while the US dollar weakened over the month. Central bank policy remained an important source of uncertainty as markets reassessed the monetary outlook against a backdrop of resilient economic activity, shifting inflation dynamics, and higher energy prices. Overall, July was characterized by sharp reversals in crowded positions, higher cross-asset volatility, and considerable dispersion across sectors, factors, and regions.

Preliminary estimates point to a mixed month for hedge funds. The average hedge fund lost around 1% in July (HFR estimates) compared with broadly

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures that begin on page 7.

flat global equities and a 1% decline in global bonds. Performance varied considerably across strategies. Less directional strategies were generally resilient, with equity market neutral and relative value managers posting positive returns. By contrast, more directional strategies struggled as established market trends reversed and crowded positions unwound. Equity hedge and CTA strategies both declined. Discretionary macro and event driven strategies also recorded more modest losses. The divergence highlights the benefits of differentiated return drivers and lower directional market exposure during a month marked by abrupt factor rotations and elevated dispersion.

Within equity hedge, July was challenging as the sharp reversal in momentum and crowded technology positions weighed heavily on long books. Equity hedge strategies declined by 1.8%, while equity market neutral managers remained positive (+0.6% m/m). Prime brokerage data suggest that global long positions experienced their weakest month of alpha generation since 2010, with alpha falling to its second-worst monthly level on record. Short books provided some protection, but this was insufficient to offset losses in crowded longs, particularly in technology and Asia. The impact was most pronounced in Japan and China, while European managers were relatively more resilient. Despite…