Stockpicking hedge funds that try to spread out their bets and diversify their risk have struggled to keep pace in a market dominated by a singular trend.
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Enthusiasm for artificial intelligence’s potential has been the main driver for the stock market’s gains this year, and the S&P 500 finished August up more than 12% on the year. Typically, a strong equity market is music to the ears of professional stockpickers, but for funds that hedge their bets to avoid being overly exposed to broader market shifts, 2026 has been tough.
The average market-neutral equity hedge fund is up less than 4% this year and has lost money this quarter, according to industry data provider PivotalPath. This underperformance came just as this style of investing hit its peak of popularity: Hedge-fund backers poured tens of billions of net new money into this style of manager in the first quarter, as Business Insider previously reported.
Several well-known names have had a tough few months.
Freestone Grove, founded by former Citadel executive Todd Barker, posted one of its worst months since it launched in 2024, losing 4.4% in August. The $6 billion-plus firm’s rough August puts its year-to-date losses at 5.3%, a person close to the manager told Business Insider.
Brandon Haley’s Holocene Advisors, meanwhile, is down more than 5% on the year after a roughly 2% loss last month, two people familiar with the New York-based manager told Business Insider.
Woodline, run by Matthew Rockefeller and Karl Kroeker, and Cinctive Capital, founded by the onetime Diamondback Capital team of Rich Schimel and Larry Sapanski, are both in the black for the year, but are trailing the overall market.
Woodline, now managing $25 billion, is up 2% through August in its main hedge fund, a person close to the manager said. Cinctive was flat last month, putting the $3.1 billion firm’s 2026 gains at 4%, a person close to the firm said.
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Freestone, Woodline, and Cinctive declined to comment. Holocene did not respond to repeated requests for comment.
The market has favored concentrated managers willing to make big bets on companies and trends they believe in, though some hedging is always required, as Situational Awareness’s July implosion demonstrated.
It’s also been a tough environment to short stocks; a Goldman Sachs mid-year report on the industry noted that nearly all of the alpha, or market-beating returns, from stockpicking funds this year have come from managers’ longs.
One example of this: Woodline’s long-only strategy that only trades US equities is up 13.5% on the year, a person close to the firm said.
Goldman’s report also said that “a vast majority of alpha” from firms’ long positions has been tied to AI.
“AI has dominated the market narrative in 2026, and has driven an outsize share of equity L/S alpha in 2026,” the report states.
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