Goldman Sachs Q2 Global Fund Holdings Report: Reducing technology and consumer holdings, increasing financial and industrial holdings

Recently, the US stock market has returned to rotation, with the Dow hitting a new all-time high yesterday, while the Nasdaq fell due to the drag from technology stocks. Against the backdrop of volatile market conditions, in the second quarter, global hedge funds and mutual funds have reduced their holdings of technology and consumer stocks, while increasing their holdings of financial, industrial, and healthcare stocks. In addition, hedge funds have shown characteristics such as long positions outperforming short positions in most sectors, leverage reduction, higher concentration within investment portfolios, and continued popularity of large-cap stocks.

Goldman Sachs' investment portfolio strategy research team has released two of their most popular research reports, HF Trend Monitor and Mutual Fundamentals. In the reports, Goldman Sachs pointed out the similarities and differences in industry and individual stock holdings between hedge funds and mutual funds.

Goldman Sachs trader John Flood pointed out that throughout the second quarter, hedge funds diversified their cyclical exposure, increased their holdings of financial and industrial stocks, while reducing their holdings of consumer stocks. Hedge funds have for the first time since 2010 raised their allocation to financial stocks to overweight. Among them, over 20 funds have established new positions in Citizens Financial Group (CFG), Global Payments Inc. (GPN), Wells Fargo (WFC), and FactSet Research Systems (FDS). FactSet Research Systems entered Goldman Sachs' "rising star list" last quarter, becoming one of the companies with the largest increase in hedge fund holdings. In the industrial sector, Eaton (ETN), Paylocity Holding Corporation (PCTY), and Stericycle (SRCL) were included in the "rising star list".

To balance the increased holdings of financial and industrial stocks, hedge funds reduced their holdings of consumer stocks and further increased their positions in the healthcare sector.

On the mutual fund side, on average, financials (+147 bp) and industrials (+137 bp) became the most overweight sectors, while the underweight of the information technology sector reached 358 bp, the lowest level in the past decade. In addition, all types of mutual funds increased their holdings in the healthcare and communication services sectors, while reducing their holdings in the materials sector.

Furthermore, both hedge funds and mutual funds reduced their positions in large-cap tech stocks at the beginning of the third quarter. This move proved wise as tech stocks subsequently experienced multiple significant declines.

Specifically, hedge funds and mutual funds reduced their net positions in Microsoft (MSFT), Nvidia (NVDA), Google (GOOGL), Meta (META), and Tesla (TSLA). This marks the first decrease in the weight of the "Big Seven" in hedge fund long-term investment portfolios since the beginning of 2022.

However, while Berkshire Hathaway significantly reduced its holdings in Apple (AAPL), both hedge funds and mutual funds increased their holdings in Apple, taking advantage of Apple's poor performance earlier in the year (down 8% as of April) to increase their positions at more attractive prices.

It is worth noting that since 2022, the weight of the Mag 7 in hedge fund long positions has decreased for the first time, and the proportion in mutual funds has also become lower, dropping from -660 bp in the first quarter to -671 bp in the second quarter In summary, the stocks that hedge funds and mutual funds have increased their holdings the most are: Fuller Holdings (CFH), Fidelity Financial Services (FI), Progressive Insurance (PGR), Visa (V), Mastercard (MA), Uber (UBER), UnitedHealth (UNH), Workday (WDAY); the stocks that have been reduced the most are: Chevron (CVX), Intel (INTC), Moderna (MRNA), Tesla (TSLA).

In addition to the above content, Goldman Sachs also pointed out some characteristics of global hedge fund holdings in Q2.

Most sectors see long positions outperforming short positions

Despite recent market volatility, U.S. long-short hedge funds have still achieved a steady 9% return since the beginning of the year. Popular hedge funds' long positions have performed strongly, providing support for fund returns.

Despite a 10% pullback in July, the most popular long positions for Goldman Sachs hedge funds have returned 19% year-to-date, outperforming the equally weighted S&P 500 index (+9%) and a concentrated basket of shorts (+10%). Year-to-date, popular long positions have outperformed concentrated shorts in all industries except for non-essential consumer goods and communication services.

Hedge funds reduce leverage, market interest in shorts remains low

Hedge funds reduced net leverage and total leverage in July, but overall risk exposure remains higher than the average level of the past five years. Consistent with historical patterns, net leverage has decreased during recent market pullbacks but then rebounded with stock prices.

Market interest in short positions for median stocks in the S&P 500 index remains low, accounting for only 1.8% of outstanding shares. Market interest in short positions for all industries remains below the 30-year average level except for essential consumer goods and utilities.

High concentration within portfolios, large-cap stocks remain popular

In the second quarter of 2024, hedge funds' internal portfolio concentration and cross-portfolio concentration remain at extremely high levels. Internal portfolio concentration has increased slightly, while cross-portfolio concentration has decreased slightly. A typical hedge fund concentrates 72% of its long positions in the top ten holdings.

In the second quarter, the turnover rate of portfolio positions decreased. On average, hedge funds changed 23% of their individual stock positions and 11% of their largest quartile positions.

Despite recent selling of large-cap stocks by hedge funds, mega-cap stocks remain the most popular long-term holdings. This quarter, apart from Tesla, the "Big Seven" U.S. stocks continue to occupy the top six spots on the VIP list.

The VIP list consists of 50 stocks that are most frequently found in the top 10 holdings of hedge funds. Since 2001, this combination has outperformed the S&P 500 index in 59% of quarters, with an average quarterly excess return of 43 basis points