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Hedge fund crowding has been pretty extreme over the past year, but many big players are now paring back their exposure to the Magnificent Seven tech stocks that powered the recently rally.
Goldman Sachs has once again tallied the 13F filings of hundreds of US hedge funds — with gross stock market positions of $2.8tn — and one of the big takeaways is a modest but notable rotation away from a lot of hot names. They even seem to be falling out of love with Nvidia.
Stanley Druckenmiller is a good example. His family office has now liquidated almost his entire position in Nvidia, and ratcheted back his position in Microsoft in the second quarter.
This exemplified a broader tend. The number of hedge funds that held one of the Mag7 as one of their top-10 positions fell almost across the board. The sole exception is Apple: 43 of the 693 hedge funds tracked by Goldman now hold it as one of their 10 biggest positions, up from 30 at the end of the first quarter.
(FWIW, Tesla is such a Bizarro World stock that even though it is part of the Mag7, so few hedge funds have exposure to it, whether short or long, that it doesn’t even appear in Goldman’s data.)
When it comes to the absolute number of hedge funds that have positions in these stocks, the trend was similar.
A few more hedge funds added Apple and Amazon to their portfolios in the second quarter — and TSMC seems to be benefiting from worries about Nvidia — but aside from that the overall picture was of general Big Tech position pruning.
As a result, the Mag7 now account for just 13 per cent of the average hedge fund portfolio, and Goldman’s measure of hedge fund crowding — the similarity of portfolios across the industry — has dipped back a little.
This has also helped performance, given the turbulence that a lot of the Mag7 subsequently saw this summer. Goldman Sachs estimates that classic US long-short equity hedge funds are up 9 per cent this year.
That said, there are still a few really stark hedge fund hotels. Hedge funds own at least 10 per cent of Hess, TransDigm, Tenet Healthcare, AerCap, Insmed, Teva Pharmaceutical, IAC, SharkNinja, Western Digital, Caesars, and HubSpot, and at least 20 per cent of Endeavour, US Steel, HashiCorp, Alight, Natera and Liberty Broadband.
Moreover, Goldman’s analysts note that their measure of hedge fund density — the weighting of a fund’s 10 biggest positions compared to its overall portfolio — has hit 72 per cent (which, eyeballing the below chart, looks like a new record).
Of course, this is kinda what you want to see. Investors don’t pay long-short hedge funds to have broad, bland portfolios. They pay for skill and conviction.
But it is notable how little dispersion there is across the hedge fund industry — crowding has dipped but remains elevated — and each individual fund is becoming much more concentrated. That’s obvious fuel for shocks to be transmitted to disparate stocks.