Hedge Funds and Mutual Funds Invest in Key Stocks Last Quarter

In the last quarter, hedge funds and mutual funds significantly increased their investments in a select group of stocks, anticipating shifts in market leadership and heightened volatility. Goldman Sachs analyzed the holdings of 693 hedge funds and 554 mutual funds, revealing a trend towards shared favorites among these investor groups. The analysis led to the creation of two baskets: the 'Hedge Fund VIP basket' and the 'Mutual Fund Overweight basket,' each containing 50 stocks that are highly favored by these investors. Among the eight stocks that both hedge funds and mutual funds favored were major players like Visa, Mastercard, and CRH, a building materials company. These stocks have collectively risen 17% year to date, mirroring the broader market performance. The overlap in preferences between hedge funds and mutual funds has historically led to outperformance, with this combined basket outperforming the S&P 500 in 61% of months since 2013. Interestingly, both investor groups reduced their exposure to prominent technology stocks, known as the Magnificent Seven, for the first time since 2022. This shift indicates a growing bearish sentiment towards these tech stocks, as mutual funds became more underweight in their portfolios. This strategic repositioning helped mitigate the impact of the summer sell-off in these tech stocks. Additionally, there was a notable increase in allocations towards the health care sector, which is perceived as offering stability and growth that is largely independent of the ongoing artificial intelligence trends. This strategic pivot reflects a broader trend among investors seeking to balance risk and opportunity in a changing market landscape.