Chip & AI Bets Drive Hedge Funds to Best First Half in Five Years
N.R. Finch
Hedge funds returned an average 7.2% in the first half of 2026, their strongest H1 since 2021; tech-focused funds led at 27%, powered by chip stocks and AI wagers that delivered a record quarter for semiconductors.
How strong was the first half overall?
Hedge funds averaged 7.2% in H1, the best first-half since 2021, according to PivotalPath.
Since January 2020 the industry's compound annualized return stands at 8.5%.
This means → even after the pandemic, rate hikes, and geopolitical shocks, the long-run return curve for the industry is still pointing up.
A March selloff triggered by the Iran conflict briefly rattled markets, but the subsequent chip rally helped most funds fully recover.
Who made the most — and how?
Tech-focused strategy funds averaged 27% in H1, far above the industry mean.
Whale Rock Capital gained 72.5%, driven by semiconductor holdings and its stake in AI firm Anthropic. Appaloosa Management returned 32%, led by memory-chip positions.
In plain terms = the money in this rally flowed to two lanes — "making chips" and "using chips for AI." Funds that picked the right lane left peers far behind.
Chip stocks posted their best quarter on record, acting as the core engine of the rally.
How did multi-strategy funds perform?
D.E. Shaw's macro fund Oculus rose 27.4% in H1; Marshall Wace's Eureka fund gained 19.9%.
Two teams at Millennium Management that specialize in index-rebalancing trades — capturing price dislocations when index constituents change — earned a combined ~$3.7 billion in June alone.
This means → multi-strategy funds didn't need to bet on a single theme; they profited from structural market events and still captured the rally's upside.
Why did index rebalancing become June's big opportunity?
SpaceX was fast-tracked into the Nasdaq and FTSE Russell benchmarks, triggering massive passive-fund rebalancing flows.
In plain terms = when a large stock is suddenly added to an index, every fund tracking that index must buy in, pushing the price temporarily out of line — teams skilled at this trade profit in that window.
Millennium's two rebalancing teams were among the primary beneficiaries.
Who fell behind?
ExodusPoint gained just 0.2% in June and 4.3% for H1, lagging multi-strategy peers.
Quantitative hedge funds posted their worst stretch since 2023, a stark contrast to tech-themed funds.
This reflects a rally driven by a narrow set of high-conviction themes (chips + AI); quant models struggled to extract alpha in such a concentrated market.
What matters in the second half?
PivotalPath's Jon Caplis noted that consistent performance is drawing renewed capital inflows into hedge funds, especially as private equity and credit markets face headwinds.
This means → capital is rotating back from private alternatives into hedge funds — the industry's funding source mix is shifting.
Whether quant funds can reverse their slump and how fast private-alternative capital continues to flow in are the two key variables shaping the industry landscape in H2.
Content is for reference only, not financial advice.