Hedge funds made strategic adjustments to their portfolios throughout the first quarter of 2024.
Firms are looking for high-return opportunities beyond the mega-cap tech giants preferring to focus on cyclical sectors and artificial intelligence (AI)-related infrastructure stocks.
Except for Apple Inc AAPL, positions in several ‘Magnificent Seven’ stocks — Alphabet Inc GOOGL, Amazon.com Inc AMZN, Nvidia Corp NVDA, Microsoft Corp MSFT, and Meta Platforms Inc META — were trimmed from hedge funds.
Still, the strong performance of the so-called ‘Magnificent 7′ tech stocks maintained their weight at 13% of hedge fund long portfolios, according to the latest Goldman Sachs’ Hedge Fund Monitor report.
Cyclical Sectors
In parallel, hedge funds expanded their investments in cyclical sectors, elevating the exposure to Financials.
Information Technology remained the largest net sector weight at the start of Q2 2024. It accounts for 18% of total net exposure. However, it also registered the largest underweight relative to the Russell 3000, with a -913 basis points (bp) difference. Health Care was the largest overweight sector, with a +375 bp difference.
| Sector | Hedge Funds’ Net Weight | Russell 3000 Weight | Hedge Fund Net Tilt |
|---|---|---|---|
| Health Care | 15.8% | 12.0% | +375 bp |
| Communication Services | 11.0% | 8.8% | +226 bp |
| Industrials | 12.1% | 9.9% | +222 bp |
| Materials | 4.8% | 2.7% | +205 bp |
| Energy | 4.9% | 3.8% | +109 bp |
| Consumer Discretionary | 11.9% | 10.8% | +107 bp |
| Utilities | 2.8% | 2.1% | +76 bp |
| Financials | 13.3% | 14.2% | -98 bp |
| Real Estate | 1.5% | 2.6% | -114 bp |
| Consumer Staples | 4.0% | 6.0% | -196 bp |
| Information Technology | 17.9% | 27.0% | -913 bp |
| Total | 100.0% | 100.0% | 0 bp |
There was also a notable rotation towards utilities, reflecting a broader AI investment focus.
In particular, hedge funds have shown a keen interest in Phase 2 Infrastructure stocks within the AI sector. Among the companies that have seen the largest increase in hedge fund popularity, are:
- Marvell Technology Inc. MRVL
- TD Synnex Corporation SNX
- AES Corporation AES
- Littelfuse Inc. LFUS
See Also: AI-Driven Rally Set To Expand To Power, Commodities, Utilities: ‘It’s Not Just About Nvidia Anymore’
Most Popular Hedge Funds’ Increase In AI Universe During Q1 2024
| Name | Subsector |
| Marvell Technology, Inc. | Semiconductors |
| TD SYNNEX Corporation | Technology Distributors |
| Apple Inc. | Technology Hardware Storage & Peripherals |
| AES Corporation | Independent Power Producers & Energy Traders |
| Littelfuse, Inc. | Electronic Components |
| Adobe Inc. ADBE | Application Software |
| Freeport-McMoRan, Inc. FCX | Copper |
| Walgreens Boots Alliance, Inc. WBA | Drug Retail |
| Nextracker Inc. Class A NXT | Electrical Components & Equipment |
| First American Financial Corporation FAF | Property & Casualty Insurance |
Most Concentrated Hedge Fund Holdings In The S&P 500
The Goldman Sachs’ Hedge Fund Monitor asserts that portfolio concentration among hedge funds remains particularly elevated.
The typical hedge fund maintains 70% of its long portfolio in the top 10 positions. This trend remained extremely elevated in Q1 2024.
The following table details the top 20 most concentrated hedge fund holdings within the S&P 500, highlighting where hedge funds are investing their capital.
| Company | Sector | Sub-sector | % of Equity Cap Owned by Hedge Funds |
|---|---|---|---|
| Bath & Body Works BBWI | Consumer Discretionary | Other Specialty Retail | 27% |
| Hess Corp. HES | Energy | Oil & Gas Exploration & Production | 16% |
| Ralph Lauren Corp. RL | Consumer Discretionary | Apparel Accessories & Luxury Goods | 15% |
| Expedia Group Inc. EXPE | Consumer Discretionary | Hotels, Resorts & Cruise Lines | 14% |
| Universal Health Svc. UHS | Health Care | Health Care Facilities | 14% |
| Western Digital WDC | Information Technology | Technology Hardware, Storage & Peripherals | 13% |
| NRG Energy Inc. NRG | Utilities | Electric Utilities | 13% |
| Invesco Ltd. IVZ | Financials | Asset Management & Custody Banks | 13% |
| Vistra Corp. VST | Utilities | Independent Power Producers & Energy Traders | 13% |
| Caesars Entertainment CZR | Consumer Discretionary | Casinos & Gaming | 12% |
| Evergy Inc. EVRG | Utilities | Electric Utilities | 12% |
| Catalent Inc. CTLT | Health Care | Pharmaceuticals | 11% |
| Juniper Networks JNPR | Information Technology | Communications Equipment | 11% |
| Dollar Tree Inc. DLTR | Consumer Staples | Consumer Staples Merchandise Retail | 11% |
| NiSource Inc. NI | Utilities | Multi-Utilities | 10% |
| Incyte Corp. INCY | Health Care | Biotechnology | 10% |
| Lamb Weston Holdings LW | Consumer Staples | Packaged Foods & Meats | 10% |
| Qorvo Inc. QRVO | Information Technology | Semiconductors | 10% |
| Synchrony Financial SYF | Financials | Consumer Finance | 10% |
| Humana Inc. HUM | Health Care | Managed Health Care | 10% |
Now Read: Inflation Stresses Retail Traders As Fed Cuts Look Unlikely, Crypto Doubts Increase: Survey
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