Published: Nov. 21, 2023 at 7:38 a.m. ET
Hedge fund crowding hit record highs in the third quarter as the world’s top funds piled into a selection of popular stocks in the face of widespread market volatility, Goldman Sachs’ analysis of 13-F filings from 735 hedge funds with $2.4 trillion in assets shows.
The convergence of strategies saw Goldman Sachs’ crowding index hit its highest levels in its 22-year history as hedge funds invested heavily into the world’s top technology stocks and reduced their exposure to the energy, healthcare, and industrials sectors.
…
Hedge fund crowding hit record highs in the third quarter as the world’s top funds piled into a selection of popular stocks in the face of widespread market volatility, Goldman Sachs’ analysis of 13-F filings from 735 hedge funds with $2.4 trillion in assets shows.
The convergence of strategies saw Goldman Sachs’ crowding index hit its highest levels in its 22-year history as hedge funds invested heavily into the world’s top technology stocks and reduced their exposure to the energy, healthcare, and industrials sectors.
Crowding refers to situations in which investment funds take similar positions that see their trading strategies overlap. High levels of crowding lead rise to risks of lower returns and sharper crashes.
The uptick in crowding in the fourth quarter saw hedge funds double their investments in the ‘Magnificent Seven’ tech stocks, which include Amazon
AMZN
,
Apple
AAPL
,
Alphabet
GOOG
,
Meta
META
,
Microsoft
MSFT
,
Nvidia
NVDA
,
and Tesla
TSLA
,
in a shift that saw the mega-cap holdings account for 13% of all US hedge fund long positions.
This convergence of strategies saw hedge funds concentrate their investments in their main holdings, in movements that saw the typical hedge fund hold 70% of its portfolio in its top ten positions. This in turn led to the highest levels of concentration on record apart from in the fourth quarter of 2018.
In the fourth quarter, the convergence saw the world’s top hedge funds outperform the wider markets, generating +31% returns compared to the S&P 500’s +19%, in a reversal of the underperformances seen in both 2021 and 2022.
The world’s top hedge funds, as listed on Goldman Sachs’ Hedge Fund VIP list, have outperformed the S&P 500 in 59% of quarters since 2001.
Excitement over artificial intelligence saw investments in the Magnificent Seven reach record highs, as hedge funds also looked for opportunities in the volatility caused by the rise of GLP-1 weight loss and diabetes drugs, such as Novo Nordisk’s
NOVO.B
Ozempic.
The enthusiasm surrounding GLP-1 drugs saw hedge funds plow investment into Eli Lilly
LLY
and also seek to capitalize on the financial hit that the new diabetes drugs might inflict on glucose monitor makers including Abbott Laboratories
ABT
and Insulet
PODD
.
The heavy investments in mega-cap tech stocks, in turn, saw hedge funds reach near-record levels of exposure to momentum, as shares in top tech companies rallied after previously underperforming in 2022.
