Hedge-fund momentum strategies struggle amid market volatility

Hedge funds are facing challenges this year as their common strategy of momentum investing is struggling. This strategy involves buying stocks that are performing well and selling those that are not. However, many trends that used to work, particularly in technology and sectors benefiting from the US economy, are failing. In 2025, global markets have become more volatile due to trade tensions. As a result, hedge funds using momentum strategies have seen a decline. An index from Societe Generale SA reports that such funds are down 4.3% this year, experiencing their second-worst start since 2014. Notable shifts include swift declines in tech stocks, agricultural commodities, and currencies like the Japanese yen. An ETF from BlackRock that focuses on top-performing stocks faced a significant outflow of $800 million, marking the largest withdrawal in two years. The difficulties stem from a mix of reducing investment risks, weakening economic fundamentals, and geopolitical uncertainties. Adam Singleton from Man Group highlights this combination as a key factor leading to losses in momentum investing. February was particularly tough, with many fast-money strategies recording losses. The situation was aggravated by tariff threats, which caused major fluctuations in the commodities market. Some hedge funds that typically profit from market trends found themselves at a disadvantage as their strategies were unable to adapt quickly enough. Although some funds manage to stay positive, like Campbell & Co., which is up 4.1% this year, many others are struggling. The inability to profit from fast market changes has raised concerns. The recent recovery of stock prices offers some hope, yet it poses challenges for funds whose models are slow to adjust. Experts believe that the changing market conditions may also present new opportunities for traders with the right strategies. As the economic landscape shifts, it may take time for the markets to adjust to what some are calling a new reality.