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Hedge and mutual funds are pivoting to Growth from Value with increased exposure to Info Tech and Consumer Discretionary, said Goldman Sachs top US equity strategist, David Kostin.
Goldman Sachs strategists analyzed the equity holdings of hedge and mutual funds at the beginning of 3Q 2022. The results show that mutual funds improved their weighting in GS’s sector-neutral long/short Growth factor by 422 bp, which marked the largest quarterly increase since at least 2013, Kostin explained.
Moreover, the data shows that mutual funds are “more overweight Growth than at any time since mid-2018.”
“Mutual funds have moved 66 bp away from Value, but are still in the 79th percentile compared to the past 10 years. Hedge funds added 74 bp of exposure to Growth and reduced length to Value by 30 bp. However, hedge funds are still less inclined to Growth than average (508 bp vs. 728 bp average),” Kostin added in a client note.
Similarly, an analysis of hedge fund long portfolios shows that the weight of growth stocks with low or no profitability has increased from 3.5% to 3.8%.
“Conversely, the weight of growth stocks with high profit margins continued to decline for the 3rd straight quarter. The turn back to Growth and lower quality stocks has been a tailwind for returns in 2H 2022.”
In particular, funds are increasing their exposure to Info Tech and Consumer Discretionary, with sub-sectors such as Autos, Tech Hardware, Semiconductors, and e-commerce also benefiting from inflows.
“Mutual funds added exposure to each of the big 7 tech stocks (AAPL, AMZN, GOOGL, MSFT, NVDA, TSLA) except META, while AAPL, AMZN, NVDA, and TSLA contributed to the increase hedge fund length in Info Tech and Consumer Discretionary,” explained Kostin.
Finally, the strategist named 12 “shared favorites” among hedge funds and mutual funds this quarter: Centene (NYSE: CNC ), Danaher (NYSE: DHR ), Elevance (NYSE: ELV ), Fiserv (NASDAQ: FISV ), Humana (NYSE: HUM), Mastercard (NYSE: MA), ServiceNow (NASDAQ: NOW), Charles Schwab (NYSE: SCHW), Uber (NYSE: UBER), UnitedHealth (NYSE: UNH), Visa (NYSE: V), and Wells Fargo (NYSE: WFC).
By Senad Karaahmetovic