Hedge funds have a net short position in Apple stock, according to Jefferies.
Nicholas Kamm / AFP via Getty Images
Some of the big-money investment funds on Wall Street have been moving out of Big Tech stocks and into other growth names.
Hedge funds, in aggregate, cut the percentage of their portfolios invested in a “sweet 16” group of stocks to 16.1% from 23.8%, according to Jefferies data encapsulating several trillions of dollars worth of assets. That group includes Nvidia (NVDA), Qualcomm (QCOM) Advanced Micro Devices (AMD), Tesla (TSLA), PayPal Holdings (PYPL), and Fiserv ( FISV
), as well as the so-called FAANG stocks: Facebook , now called Meta Platforms (META); Apple (AAPL); Amazon.com (AMZN); Netflix (NFLX); and Google’s parent company, Alphabet (GOOGL).
Those stocks’ collective weighting in fund managers’ portfolios is now more than 10 percentage points below the same companies’ weighting in the S&P 500. That means hedge funds are betting that the best gains will come from stocks outside that group.
Not only did funds lighten up on those stocks, but they have accumulated short positions in a few of them. The funds have a 1.2% net short position in Apple (AAPL), which means that a higher percentage of their portfolios are short Apple—bettting that the price will fall—than the percentage that will gain if the price rises. They also have small net short positions in Nvidia and Tesla.
These positioning changes make sense. Fund managers that are looking for the best earnings growth may not find it in these stocks anymore. It is no surprise because businesses like digital advertising and streaming, which once kept profits soaring, have matured.
The investment managers are moving into other stocks instead. They have increased the percentage of their portfolios in “secular growth” stocks to about 50% from around 40% a few months ago. That is higher than the percentage of the S&P 500 that those stocks comprise. A few months ago, these stocks represented a lower portion of these funds relative to the S&P 500.
Secular growth refers to companies that are offering products and services that can displace the traditional ways that consumers and businesses operate. The idea is that even if the economy stumbles—and it may now be in a recession—these companies still have a shot to grow because they are taking market share from other players.
That logic has worked well recently. The iShares Russell 2000 Growth Exchange-Traded Fund (IWO) has gained almost 17% from its mid June low for the year, several percentage points better than the gains on both the Russell 2000 and S&P 500.
Hedge funds are still buying up growth stocks, but the most promising ones may no longer be the old favorites.
