Hedge Fund Exposure to the Top 7 Tech Stocks at Record High, Goldman Sachs Says
Hedge funds had record exposures to the seven largest tech firms by market capitalization in the week following $NVIDIA (NVDA.US)$'s jaw-breaking revenue beat, according to the latest analysis released by Goldman Sachs.
The largest seven US stocks collectively now comprise about 20% of the total net market value, the largest percentage of single stock exposure as of August 24, held by hedge funds tracked by Goldman Sachs. These companies have also been crucial to this year's gains in the overall US stock market.
The positions held by hedge funds of $Microsoft (MSFT.US)$, $Apple (AAPL.US)$, $Alphabet-C (GOOG.US)$, $Meta Platforms (META.US)$, and $Amazon (AMZN.US)$ were trades in individual stocks, not just indices like the $Nasdaq Composite Index (.IXIC.US)$.
Hedge funds continue to embrace mega cap technology and artificial intelligence themes," lead brokerage Goldman Sachs said in a note sent to a restricted group of clients and obtained by Reuters.
Last week, Nvidia reported record quarterly revenue on the back of strong demand for its artificial intelligence (AI)-focused chips and said the AI boom has legs.
Jim Newman, chief investment officer at Sussex Partners, said, "We essentially have two markets: the 'Magnificent Seven' and all the rest of the equity. Hedge funds will be forced to capture these returns regardless of analysis."
“It's momentum on steroids," he said, adding that it may be harder for stock-picking hedge funds to outperform investments in other asset classes such as fixed income.
Given the outperformance of stocks, it's worth investing in them, Schneller said.
Despite the high exposure to the largest 7 tech stocks, managers of hedge funds and long-only funds have underweighted cyclical sectors over defensive stocks for the past few years, according to data compiled by Bank of America.
Hedge funds and mutual funds both entered 3Q with largest Info Tech underweight since at least 2012," strategist David Kostin of Goldman Sachs wrote in a note.
The blowout year of mega-caps has also raised concerns about the market's lack of breadth. Analysts at Goldman Sachs expect the gains to continue as other sectors catch up.
Hedge funds and mutual funds rotated into cyclicals at the expense of growth sectors like Info Tech and Consumer Discretionary," Kostin said. "Earlier this year, the seven mega-cap tech stocks lifted the S&P 500 in an extremely narrow rally. Returns have since broadened out and funds cut exposure to the two sectors."
Source: Seeking Alpha, Reuters
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