Hedge funds pared exposure to the Magnificent Seven megacap tech stocks in the fourth quarter amid signs of extremes in the market, according to Goldman Sachs Group Inc.
“Funds were net sellers of most of the Magnificent Seven stocks,” as their weights rose to records, strategists including Ben Snider and Jenny Ma wrote in a note dated Tuesday that analyzed 722 hedge funds with $2.6 trillion of gross equity positions. All seven except Amazon Inc. saw a decrease in exposure, they added.
The changes underscore how investors are increasingly questioning whether the group — comprised of Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla Inc. — can repeat last year’s performance, when an index of the stocks rose 106% versus the S&P 500’s 24% gain. Some strategists have started noting a wide dispersion of consensus growth estimates across the group.
The group’s earnings-reporting season has been mixed. While Meta and Amazon beat expectations, Apple and Tesla saw some weakness. Nvidia’s earnings are due later Wednesday, and traders will be looking for confirmation the company can meet the lofty expectations set amid the artificial-intelligence boom. Option trades are implying an 11% earnings move in the stock, which has tripled in price in the past year.
Microsoft, Apple and Nvidia “ranked among the Info Tech stocks with the largest net decreases in hedge fund popularity, while communication services stocks like Snap Inc. were added, the Goldman team wrote.
“While trimming mega-cap tech stocks, hedge funds looked for opportunities in cyclicals and some pockets of growth,” the Goldman team wrote. Funds continued to rotate toward cyclicals over defensives, lifting that preference to the highest since 2016 amid strong US economic data and hints of improvement in global manufacturing.
The large degrees of hedge fund crowding, momentum exposure and gross leverage have all aided returns during the past year, but they also point to “the risk of a violent unwind if the market environment shifts,” as briefly occurred during the last several weeks of 2023, Goldman analysts added.
Copyright Bloomberg News
"QuantumRisk, by design, recognizes that these so-called “impossible” events actually happen, and it accounts for them in a way that advisors can see and plan for," Dr. Ron Piccinini told InvestmentNews.
Advisors who invest time and energy on vital projects for their practice could still be missing growth opportunities – unless they get serious about client-facing activities.
The policy research institution calculates thousands in tax cuts for Washington, Wyoming, and Massachusetts residents on average, with milder reductions for those dwelling in wealth hotspots.
Yieldstreet real estate funds turned out to be far riskier than some clients believed them to be, according to CNBC.
The race to 100 transactions ended a month early this year, with April standing out as the most active month on record for RIA dealmaking.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
