By Nell Mackenzie and Carolina Mandl
LONDON/NEW YORK Hedge funds hold record exposure to the seven biggest tech stocks by market capitalization, according to data released on Friday by Goldman Sachs, in a week Nvidia hit an all-time high after beating revenue expectations.
The largest seven U.S. stocks collectively now make up about 20% of the total net market value held by hedge funds tracked by Goldman Sachs. They have also been instrumental in the gains in the broader U.S. equity market this year.
Microsoft , Apple, Alphabet, Meta, Amazon, Nvidia and Tesla saw the biggest percent of single stock exposure as of Aug. 24, meaning the positions were trades in the individual stocks, not just in the indices like the Nasdaq.
"Hedge funds continue to embrace mega cap tech and the artificial intelligence theme," Goldman Sachs' prime brokerage said in a note sent to a restricted group of clients and obtained by Reuters. The investment bank did not immediately comment on the note.
The companies did not immediately respond to a request for comment.
Last week, Nvidia reported record quarterly revenue fueled by strong demand for its artificial intelligence (AI)-focused chips and said the AI boom has legs.
"We essentially have had two markets: the 'Magnificent Seven' and all the rest of equities. Hedge funds will be forced into capturing these returns regardless of analysis," said Jim Neumann, chief investment officer of Sussex Partners.
"It is momentum on steroids," he said, adding that stock-picking hedge funds might find it harder to outperform investments in other asset classes, like fixed income.
Goldman Sachs, which runs one of Wall Street's largest prime brokerages, is able to track trends in flows.
Shares in these companies have all risen over 35% this year, with performances ranging from Apple's 38% rise to Nvidia's 211% jump.
"The primary objective of hedge funds is to generate returns, rather than to be imaginative for the sake of diversification," said Bruno Schneller, managing director at INVICO Asset Management.
Given the stocks' outperformance, it makes sense to have invested in them, Schneller said.
Daniel Loeb, the CEO of Third Point - which had around $12.6 billion in assets under management at the end of February - said earlier in August that his top five winners in 2023 had included Microsoft, Amazon and Alphabet.
HFR's long/short index, which tracks the performance of stock-trading hedge funds that buy and sell stocks, was up about 7% for the year through July, according to the data company's website.
(Reporting by Nell Mackenzie and Carolina Mandl; Editing by Sharon Singleton and Paul Simao)