Goldman says hedge funds suffered worst underperformance vs S&P 500 in July in more than 20 years of data

According to a recent Goldman Sachs prime brokerage report, active hedge fund managers suffered their worst monthly underperformance relative to the S&P 500 in over 20 years. This historic underperformance was primarily driven by extreme crowding in mega-cap technology names and a rapid de-grossing phase as semiconductor valuations cooled off significantly during the month.

While retail investors holding diversified index funds remained relatively insulated, institutional long/short funds took a severe hit as crowded thematic AI bets unwound rapidly. The broader market's natural diversification allowed the passive S&P 500 index to significantly outpace active manager returns during this volatile period, sparking renewed debate over active management vs. passive indexing in the current macroeconomic climate.

**Source Link:** [cnbc.com](https://www.cnbc.com/2026/08/21/goldman-hedge-funds-historic-underperformance-sp500-degrossing.html)