Hedge funds are experiencing their most significant losses since early April of last year, known as "Liberation Day," due to a wave of unwinding in crowded trades impacting the "fast money" investor community, according to strategists at JPMorgan. In a report released Wednesday, the bank's analysts noted that quantitative funds, such as commodity trading advisors (CTAs), have faced their worst performance in nearly a year following the outbreak of conflict in the Middle East.

The bank indicated that long-short equity hedge funds also recorded substantial losses, attributed to their overweight positions in European and South Korean markets and underweight stance in software stocks. CTAs typically leverage collective market intelligence by following momentum across various futures markets. Citing data from HFR, JPMorgan stated that systematic diversified CTA funds had incurred losses of nearly 4% in March. Another index compiled by Société Générale shows that this strategy has declined by more than 2% so far this month.

Trend-following funds vary widely in form, size, and investment horizon. Over the past two weeks, escalating tensions in the Middle East have wiped trillions of dollars from global stock market valuations while pushing oil prices above $100 per barrel for the first time since 2022. It was reported that several of the world's largest hedge funds—including Balyasny Asset Management, Citadel, and Millennium Management—all posted declines last week.

In other metrics, the HFRX Equity Hedge Index, which JPMorgan analysts use to track losses in long-short funds, is on track for a 3% drop this month. Meanwhile, data compiled by Goldman Sachs' prime brokerage unit showed that hedge funds increased their short positions in equity ETFs by 8.3% in the week ending March 6.

JPMorgan suggested that, across asset classes, equities currently appear more vulnerable than bonds. Strategists led by Nikolaos Panigirtzoglou wrote, "From a positioning perspective, equities seem more susceptible to shocks than bonds going forward. Previous short positions on the U.S. dollar—concentrated mainly in emerging market currencies—appear to have been covered."