Key Takeaways
- • Goldman Sachs data shows hedge fund VIP positions (most popular hedge fund long holdings) suffered their worst 12-month performance relative to the S&P 500 on record, with a 21 percentage point lag since early 2021 across the bank's 20+ year tracking history.
- • Major hedge fund portfolio holdings including Meta Platforms, Netflix, PayPal, and Roku experienced single-day declines exceeding 20% following earnings announcements, driving significant aggregate underperformance in July 2026.
- • Year-to-date performance shows the Goldman Sachs VIP basket down 12% versus a 9% decline for the S&P 500, marking the worst relative performance in the basket's entire 24-year measurement period since 2002.
- • Asia-based hedge funds sustained particularly severe losses, with regional firms betting on both rising and falling stocks experiencing aggregate 15% drawdowns in July according to Goldman estimates based on aggregate client positions.
- • The earnings-driven market volatility has prompted hedge funds to execute a "great positioning rotation" away from growth stocks and toward value stocks, signaling a strategic reallocation across the sector.
Summary
Hedge funds have experienced historic underperformance relative to the S&P 500, with Goldman Sachs reporting that the most popular hedge fund long positions suffered their worst 12-month return differential on record. According to Goldman's analysis, which tracks the VIP index composed of hedge fund managers' "very important positions," the basket has lagged the broad market by 21 percentage points since early 2021—the worst stretch in the index's 20-year history dating to 2002. Year-to-date performance through July reflects this deterioration, with the VIP basket returning negative 12% compared to negative 9% for the S&P 500.
The underperformance was driven significantly by catastrophic single-day earnings declines in widely-held hedge fund positions. Major portfolio holdings including Meta Platforms, Netflix, PayPal, and Roku each experienced single-day share price declines exceeding 20% following earnings announcements. Goldman noted that "an unusually large share of US equity market cap have experienced 20%+ single-day declines in early 2022," with this magnitude of concentrated market-cap deterioration only previously exceeded during the technology bubble unwind of 2000-2002, the 2008 financial crisis, and the March 2020 COVID selloff. This concentration of earnings-driven volatility in hedge fund favorite names has created acute performance headwinds across the alternative investment sector.
International hedge funds faced compounded difficulties, with Asia-based firms reporting particularly severe losses. Regional hedge funds that maintained both long and short equity positions sustained aggregate 15% monthly drawdowns in July 2026, according to Goldman Sachs estimates derived from aggregate client positioning data. The breadth of underperformance across geographic regions underscores the challenge facing alternative managers navigating growth stock repricing.
In response to the earnings volatility and value rotation opportunities, hedge funds are executing what Goldman characterized as a "great positioning rotation" away from growth-oriented equities and toward value stocks. This strategic reallocation reflects both defensive positioning and recognition that the market is repricing growth-at-any-cost valuations while offering more attractive relative value opportunities in traditional value equity sectors. The shift represents a fundamental recalibration of hedge fund portfolio construction after a sustained period of growth stock concentration that has now created measurable alpha headwinds for the alternative investment community.
The underperformance was driven significantly by catastrophic single-day earnings declines in widely-held hedge fund positions. Major portfolio holdings including Meta Platforms, Netflix, PayPal, and Roku each experienced single-day share price declines exceeding 20% following earnings announcements. Goldman noted that "an unusually large share of US equity market cap have experienced 20%+ single-day declines in early 2022," with this magnitude of concentrated market-cap deterioration only previously exceeded during the technology bubble unwind of 2000-2002, the 2008 financial crisis, and the March 2020 COVID selloff. This concentration of earnings-driven volatility in hedge fund favorite names has created acute performance headwinds across the alternative investment sector.
International hedge funds faced compounded difficulties, with Asia-based firms reporting particularly severe losses. Regional hedge funds that maintained both long and short equity positions sustained aggregate 15% monthly drawdowns in July 2026, according to Goldman Sachs estimates derived from aggregate client positioning data. The breadth of underperformance across geographic regions underscores the challenge facing alternative managers navigating growth stock repricing.
In response to the earnings volatility and value rotation opportunities, hedge funds are executing what Goldman characterized as a "great positioning rotation" away from growth-oriented equities and toward value stocks. This strategic reallocation reflects both defensive positioning and recognition that the market is repricing growth-at-any-cost valuations while offering more attractive relative value opportunities in traditional value equity sectors. The shift represents a fundamental recalibration of hedge fund portfolio construction after a sustained period of growth stock concentration that has now created measurable alpha headwinds for the alternative investment community.
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