- Hedge funds trimmed their exposure to Magnificent 7 tech stocks last quarter, a Goldman Sachs analysis found.
- Buying proven winners like Microsoft and Nvidia was rewarded last year. But Goldman says a “violent unwind” could come if the market shifts.
- Instead, hedge funds have a larger portfolio weight in broader market indices like the Russell 3000.
Tech stocks have been the darlings of the ongoing market rally. But hedge funds are inching away from them.
“Apart from [Tesla], the Magnificent 7 stocks and [Eli Lilly] each rank as members of our Hedge Fund VIP list of the most popular hedge fund long positions, but funds generally trimmed positions in those stocks during 4Q 2023,” a Goldman Sachs analysis of 13F filings for 722 hedge funds found.
The chart below shows last quarter’s decline in the percentage of hedge funds with at least one long position in a Magnificent 7 stock:
Goldman Sachs
Goldman noted that although hedge funds were net sellers of the seven tech stocks, they comprised a bigger weighting in portfolios because of their blockbuster gains. It’s possible funds downsized their positions to reduce concentration risk.
“Nonetheless, portfolio weights of the mega-caps remain well below their weights in the equity market,” the firm wrote.
The hype around tech has encouraged more short-term “momentum” trades in AI-affiliated sectors, meaning traders are chasing further gains in stocks that have already seen significant appreciation. Goldman does warn, however, that there’s risk of a “violent unwind” in the market if the environment shifts, given this extreme concentration.