Top hedge funds have started cutting their exposure to the Magnificent Seven tech giants, despite having generated gains due to the bumper returns provided by the popular mega-cap tech companies in 2024 so far, new analysis from Goldman Sachs shows.
Hedge funds continued to be heavily invested in the Magnificent Seven – Alphabet GOOG, +0.31%, Amazon AMZN, -1.43%, Apple AAPL, -0.41%, Meta Platforms META, -0.33%, Microsoft MSFT, -0.31%, Nvidia NVDA, -4.35%, and Tesla TSLA, -3.10% – after piling into the popular stocks in the first three quarters of 2023, the analysis of 722 funds shows.
This crowding in the Magnificent Seven has seen the popular tech giants account for 13% of hedge funds’ aggregate long portfolios, with all of the companies apart from Tesla featuring on the list of hedge funds top 10 most popular stocks.
Yet, those hedge funds have now started cutting their stakes in the Magnificent Seven, in a shift that has seen them become net sellers of the mega-cap tech firms -– even as the tech companies have continued to provide outsized returns in 2024 so far.
Together, the Magnificent Seven tech giants have generated returns worth +8% in the year-to-date, versus the +5% returns provided by the S&P 500 SPX stock index.
This strong performance from the Magnificent Seven has seen Goldman Sach’s Hedge Fund VIP list of those stocks that are most popular among hedge funds post returns worth +9% in 2024 so far, the analysis of funds with $ 2.6 billion worth of gross equity positions shows.
Goldman Sachs noted that the returns generated by the Magnificent Seven have been boosted by the high levels of crowding and a record tilt toward momentum. The investment bank’s report, however, warns there is now the risk of a “violent unwind if the market environment shifts, as briefly occurred during the last several weeks of 2023.”
This unwinding has already put Microsoft on Goldman Sachs’ “Falling Stars” list of those stocks that have seen the largest drops in their popularity with hedge funds, alongside U.S. semiconductor companies Texas Instruments TXN, +1.47%, Marvell Technology MRVL, -1.89%, and ON Semiconductor Corp ON, -1.49%.
Amazon.com was the only Magnificent Seven company that continued to be added to hedge funds portfolios, in movements that saw it rise to first place on Goldman Sachs’ Hedge Fund VIP list.
Instead, hedge funds looked for gains in cyclical industries, as they sought to cash in on a possible upturn in the global manufacturing sector, on the back of strong economic data from the U.S.
This saw companies including industrial conglomerate General Electric GE, -0.36% and railway company Union Pacific Corporation UNP, +0.22% take up positions on Goldman Sach’s Hedge Fund VIP list, as companies including Arrow Electronics ARW, +0.94%, and Packaging Corp of America PKG, +0.97% were listed as rising stars.