Wednesday, June 12, 2024

“Magnificent seven” tech stocks dominate hedge fund positions

Photo by BoliviaInteligente on Unsplash

It wasn’t supposed to be like this.

After a year marked by double-digit inflation, Russia’s invasion of Ukraine and crashing markets, 2023 was widely expected to be the start of a new era in markets.

Value was back, along with volatility. FAANGS were out. Rates were rising, and revenues were everything. Growth stocks with valuations based on forecasts were out of fashion. 

That was the case as the year began, at least.

Fast-forward eight months and the tech rally has been breathtaking. Hedge funds have been at the vanguard, with ownership of the “Magnificent Seven” largest tech stocks now at a record high, according to Goldman Sachs data reported by Reuters.

Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. All but the last two were huge drivers of the tech gains in the last decade. Now they are back, turbo-charging stock market gains on hopes surrounding the potential of generative AI.

The other two, Tesla and Nvidia, are now at the forefront of stock market gains. Elon Musk’s electric car-maker was a top pandemic performer and has more recently returned to form this year.

Then there’s Nvidia, the chipmaker which blew expectations to pieces last week and has been at the heart of AI headlines. Hedge funds have doubled down, increasing their exposure to this hottest of tech stocks.

Will all this continue? Man Group released a note with calculations implying the S&P 500 was probably over-valued, but: “It could also be that artificial intelligence will significantly boost earnings in the future, which we think is plausible but remains to be seen.”

Indeed. The ability of the Magnificent Seven to keep delivering will be a key determinant of hedge fund success in the months to come. Plus ça change.