After a brutal July for technology stocks, hedge funds may be stepping back from the sector in ways that leave it increasingly vulnerable to retail-driven volatility.
JPMorgan strategists led by Nikolaos Panigirtzoglou warn that battered hedge funds, forced out of tech stocks after a punishing July, may leave the tech trade increasingly dependent on retail investors.
Preliminary data from hedge-fund analytics group Pivotal Path suggest technology, media, and telecommunications equity sector hedge funds posted an unprecedented 10% loss in July.
Multistrategy funds fared little better, dropping 2.3% for the month, representing their fourth-biggest loss in history.
Those figures exclude Situational Awareness, the AI- and tech-focused hedge fund that reportedly sold most of its holdings to Citadel.
The Philadelphia Semiconductor Index plunged 21% in July, marking its worst monthly performance since 2008 and underscoring the severity of the sector-wide selloff.
According to the JPMorgan strategists, “several other TMT Equity Sector hedge funds suffered from forced liquidations of memory stock exposures” during the period.
Panigirtzoglou believes the severity of the Pivotal Path data suggests Situational Awareness was not an isolated case, with other tech-focused funds likely facing similar forced liquidations.
July’s steep losses raise questions about risk-management frameworks that allowed concentrated chip and memory-stock positions to accumulate unchecked across multiple funds.
Because assets under management at these hedge-fund categories fell sharply in July, their risk budgets are mechanically shrunk, pushing funds toward a more cautious stance on tech going forward.
Prime brokerages that finance hedge funds may also limit how much exposure those funds can carry in the technology sector, the JPMorgan strategists noted.
These dynamics are expected to permanently reduce institutional capacity to hold volatile tech stocks, making the sector more susceptible to swings driven by leveraged ETFs, retail options, and margin accounts.
Panigirtzoglou argues this structural shift fundamentally changes who drives price action in technology names, with retail traders stepping into a vacuum left by institutional sellers.
The Nasdaq is up close to 2% so far in August, recovering some ground following the brutal July selloff centered on chip and memory stocks.
Tech stocks faced renewed pressure, however, as shares of memory makers Sandisk (SNDK) and Western Digital (WDC) tumbled after earnings results failed to impress investors.
