*

Systematic hedge funds lose money daily since October

began,

Goldman Sachs ( GS ) reports

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Losses due to crowded trades and simultaneous sell-offs,

causing

market disadvantage

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Funds still up 11.3% YTD despite recent downturn

By Nell Mackenzie

LONDON, Oct 7 (Reuters) - Systematic hedge funds have

lost money every day since October began, according to a Goldman

Sachs ( GS ) client note.

These speculators, whose algorithms ride market trends until

they peter out and who use market signals rather than views on

the economic aspects of the company stocks they trade, have

printed negative returns each day since the start of October,

the note released late on Monday showed.

As of Monday, systematic or quantitative hedge funds were

down around 1.8% for the month so far in one of the worst

four-day trading returns in almost two years, said Goldman.

Losses stemmed from crowded trades and a sell-off where

funds, seeking to curtail losses, rushed to dump bets

simultaneously.

When traders rush for the exit, the markets move against

them as each new speculator looking to exit trades has to wait

in a queue as advantageous prices deteriorate.

Hedge funds lost money on long bets expecting asset values

to rise as well as short wagers betting that asset prices would

fall, said the Goldman note.

"What we've witnessed over the past four days is a textbook

example of a multi-layered quantitative fund unwind. This isn't

about a fundamental reassessment of company earnings or economic

data; it's a technical deleveraging event where the market's own

plumbing seized up," said Bruno Schneller, managing director at

Erlen Capital Management.

Even as these funds suffered, Nasdaq and S&P

indexes reached record levels, shrugging off the ongoing

government shutdown while AI-related deals continue to roll on.

Hedge funds, particularly those that follow market signals,

will engage in popular bullish trades but also put on hedges. As

hedge funds rushed to flee trades, short positions which might

have hedged, or protected positions elsewhere, also turned into

losses.

"This highlights the inherent fragility that can build when

too much capital chases the same quantitative signals," added

Schneller.

In the U.S. and Europe, the "pain mostly felt on the

short leg", on wagers betting that asset values would decline,

the Goldman note said.

Still, systematic hedge funds remain up around 11% for the

year to date, said the note.