Goldman: Hedge, mutual funds favor banking, healthcare over tech

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LONDON- Leading hedge funds and mutual funds are betting on gains outside the tech sector in coming months, Goldman Sachs research shows.

The ten stocks currently most favored by both do not include any of the so-called Magnificent Seven tech titans that now dominate the S&P 500 index according to research by the investment bank’s prime brokerage unit.

Instead, it said, the shared top picks Goldman identified from analyzing more than $5 trillion worth of hedge fund and mutual fund holdings are mostly in financial and medical-related sectors.

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The basket of ten shared favorites includes Mastercard Visa and US healthcare groups United Health Kenvue and Humana

After intense crowding into tech megacaps, the Magnificent 7 group that includes Microsoft Amazon and Facebook owner Meta Platforms accounted for 13 percent  of hedge funds’ long positions last month, Goldman found, twice their weight at the start of 2023.

Yet signs of tech fatigue have emerged in recent weeks as hedge funds became increasingly concerned about their vulnerability to the fortunes of a small group of richly-valued businesses.

Hedge funds sold the largest volume of US tech and media stocks since July in the week to Nov. 24.

Mutual funds, meanwhile, have been lukewarm on the Magnificent Seven for much of this year.

Goldman also said the stocks it has identified as “shared favorites” of hedge funds and mutual funds over the past 10 years have largely outperformed the wider stock market.

“Stocks that are constituents of both fund types’ popular position baskets,” the Goldman strategists wrote in their note to prime brokerage clients, “have beaten the S&P 500 in 60 percent  of months since 2013”.

Meanwhile, stocks that Goldman identified as both fund types’ least favorite picks lagged the S&P benchmark index in 63 percent  of months since 2013, the investment bank said.

Both hedge funds and mutual funds have underperformed the wider market year-to-date on average, Goldman found. US equity long-short funds have returned 8 percent  while only 31 percent  of large-cap mutual funds have beaten their market benchmarks.

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