(Bloomberg) — Chalk one up for the humans.

Hedge funds that use bogus intelligence and apparatus acquirements in their trading action posted the worst month on record in February, according to a Eurekahedge index that’s tracked the industry from 2011. The first equity alteration in two years chaotic their strategies as once-reliable cross-asset correlations shifted.

While computerized programs are feared for their abeyant to render human traders obsolete, the AI quants lagged behind their arbitrary counterparts. The AI index fell 7.3 percent last month, compared to a 2.4 percent abatement for the broader Hedge Fund Research index.


The slump even surpassed a more acceptable class of quants, article trading admiral or CTAs, which posted near-record losses as the equity changeabout formed the automatic trend-following strategies.

The degree to which quant funds can aggravate selloffs has been hotly contested, with some managers arguing they are too small to spur such an impact. JPMorgan Chase & Co., however, suggests last month might be an exception, citing their torrid achievement of late.

“In all, we find that AI funds, agnate to CTAs, likely played a big role in February’s alteration by being forced to de-risk given an aberrant 7.3 percent loss over the past month,” strategists at the bank, headed by Nikolaos Panigirtzoglou, wrote in a Friday note. Adoption rates have also increased, making AI strategies more crowded, they said.

Strategies tooled for one-direction markets may have doomed managers, according to Quest Partners’ Nigol Koulajian. Practitioners likely turned conceited after optimizing models to a calm bull market, creating strategies ill-fitted to market shifts, the $1.4 billion quant fund’s chief advance administrator said in a recent account with Bloomberg News.


Still, the Eurekahedge index — which tracks about 15 funds — is only a fractional representation of the industry. Since bogus intelligence and apparatus acquirements are somewhat broad categories, the funds may employ vastly altered techniques. Some draw from acceptable statistics but can assay more circuitous data sets, while others, like deep learning, parse data through assorted layers of assay akin to the apparatus of the human brain, the theory goes.

Regardless, there’s acting affirmation that AI funds tracked by Eurekahedge are, for now, anchored to ride the trend of rising markets. JPMorgan notes that AI funds have become more activated to trend-following CTAs, with lock-step moves over the past 12 months rising to about 80 percent.

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