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Hedge Funds Show Record Exposure to Tech Giants, Driving Equities Market

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Hedge funds in the United States have reached record exposure to the seven biggest tech stocks by market capitalization, according to data released by Goldman Sachs. This comes as managers resumed buying into the sector this month, contributing to the gains in the broader U.S. equity market this year. Microsoft, Apple, Alphabet, Meta, Amazon, Nvidia, and Tesla saw the largest percent of single stock exposure as of August 24. It is important to note that these positions were trades in the individual stocks, rather than just in the indices like the Nasdaq.

The rise in exposure to these tech stocks has been largely driven by their impressive performances this year. Shares in these companies have all risen over 35%, with performances ranging from Apple’s positive 38% to Nvidia’s astonishing 211%. As a result, hedge funds are eager to capture these returns, even if it means diverting attention from other asset classes like fixed income.

Jim Neumann, the chief investment officer of Sussex Partners, described this trend as “momentum on steroids.” He believes that hedge funds will be compelled to invest in these stocks regardless of analysis. Neumann also speculated that stock-picking hedge funds may struggle to outperform investments in other asset classes due to the dominance of the tech sector.

Goldman Sachs, which operates one of Wall Street’s largest prime brokerages, has been able to track these trends in flows. The data released by the bank revealed that the largest seven U.S. stocks now make up approximately 20% of the total net market value held by hedge funds tracked by Goldman Sachs.

Bruno Schneller, a managing director at INVICO Asset Management, defended the trend, stating that the primary objective of hedge funds is to generate returns rather than pursue diversification for its own sake. Schneller believes that given the impressive performances of these tech stocks, it makes sense for hedge funds to invest in them.

Notable investors have also recognized the potential of these tech stocks. Daniel Loeb, who manages Third Point with around $12.6 billion in assets under management, revealed that his top five winners in 2023 included Microsoft, Amazon, and Alphabet.

Overall, hedge funds in the U.S. are leaning heavily towards tech stocks, with record exposure to the largest players in the sector. While this concentration presents an opportunity for significant returns, it also raises concerns about diversification and the potential risks associated with relying so heavily on a single sector.

More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )

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