News Digest:

Hedge funds have significantly reduced their holdings in the “Magnificent Seven” tech stocks (Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta, and Tesla) to a two-year low, signaling a tactical shift ahead of the earnings season, according to a Morgan Stanley report cited by Reuters.

These seven companies accounted for over 60% of hedge fund sales between Monday and Wednesday last week, indicating a move away from these names due to concerns about potentially weakening fundamentals or overvaluation as Q1 results approach. Notably, these stocks have underperformed the S&P 500 this year, with Alphabet and Tesla experiencing substantial declines.

This represents a major change in sentiment for long-short equity hedge funds. The “Mag Seven” trade was a defining feature of the 2023 AI-driven market rally, with many large funds holding significant long positions. However, this positioning is now being unwound, driven by earnings risk, disappointing stock performance, and a desire for broader portfolio diversification.

This trend is also reflected in Bank of America’s latest global fund manager survey. The “Magnificent Seven,” once seen as the most crowded trade, are now less so, with gold emerging as the new consensus favorite.

In addition to tech, hedge funds also reduced positions in various other sectors last week. This suggests a growing preference for risk management over concentrated bets on megacap growth. As the earnings season progresses, hedge fund managers appear to be prioritizing performance protection and reallocating capital towards more unique or defensive investment opportunities, especially given the current macroeconomic uncertainty and rising geopolitical tensions.

End Notes

Source: https://www.hedgeweek.com/hedge-funds-slash-magnificent-seven-exposure-to-two-year-low-ahead-of-earnings-season/