Magnificent 7 Take Center Stage In Hedge Fund Portfolios: Analysts Warn Of Extreme Concentration

Hedge fund portfolios are increasingly betting on technology stocks, with their concentration rising to extreme levels. A recent analysis by Goldman Sachs, 735 hedge funds with a whopping $2.4 trillion in gross equity positions, uncovered a substantial shift in hedge fund strategies last quarter.

Hedge funds, traditionally known for their diversified and dynamic portfolio management, are now showing an unprecedented tilt towards mega-cap tech stocks, often referred to as the “Magnificent Seven”:

• Apple Inc. AAPL
• Microsoft Corp. MSFT
• Alphabet Inc. GOOG GOOGL
• Amazon Inc. AMZN
• Meta Platforms Inc. META
• NVIDIA Corp. NVDA
• and Tesla, Inc. TSLA.

These mega-cap tech stocks now constitute 13% of the total long positions in hedge fund portfolios, a figure that has doubled since the beginning of 2023. However, this figure represents only half of these stocks’ 25% weight in the Russell 3000 index.

Read Now: Buffett, Dalio, Einhorn, Ackman: The Masters Of Wall Street Shuffle Their Stock Decks In Q3

“Hedge fund long portfolios have reached a near-record tilt toward Momentum as a factor,” Goldman Sachs’ Ben Snider and other equity analysts wrote in a note.

According to GS Prime Services, the current net exposure of hedge funds in the Magnificent 7 stocks has escalated to the 99th percentile, a significant increase from the mere 12th percentile at the beginning of 2023.

Rising Stars vs. Falling Stars

While tech takes the spotlight, other sectors are experiencing varying shifts among hedge fund portfolios. Health Care, despite a reduction in holdings, remains the largest overweight sector compared to the Russell 3000. Energy stocks, on the other hand, have seen decreased interest from hedge funds.

The analysis also highlights the “Rising Stars” and “Falling Stars” over the past quarter.

Stocks including Kenvue Inc KVUE, Eli Lilly and Co. LLY, United Steel Corp X, Abbott Laboratories ABT, and D.R. Horton Inc DHI have become increasingly popular, showcasing the largest uptick in hedge fund ownership in the third quarter of 2023.

On the other hand, companies such as Apellis Pharmaceuticals Inc APLS, Dick’s Sporting Goods Inc DKS, Willscot Mobile Mini Holdings Corp WSC, Churchill Downs Incorporated CHDN, and Teledyne Technologies Incorporated TDY observed a significant decline in hedge fund interest.

In the third quarter of 2023, 48 hedge funds incorporated Kenvue into their portfolios, whereas 27 hedge funds liquidated their positions in Apellis Pharmaceuticals.

Read Now: Billionaire Investor Ray Dalio Spotlights AI’s Transformative Impact, Warns Of US Debt Problems