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 (NASDAQ: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. (NASDAQ:MRVL)
- TD Synnex Corporation (NYSE:SNX)
- AES Corporation (NYSE:AES)
- Littelfuse Inc. (NASDAQ:LFUS)
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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. (NASDAQ: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 (NYSE:HUM) | Health Care | Managed Health Care | 10% |
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