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Hedge and mutual funds are rotating into Growth from Value with the exposure to Info Tech and Consumer Discretionary increased, notes Goldman Sachs top U.S. equity strategist, David Kostin.
Goldman Sachs strategists analyzed equity holdings of hedge and mutual funds as of the start of 3Q 2022. The results show that mutual funds enhanced their weight in the GS’ sector-neutral long/short Growth factor by 422 bp, which marks the largest quarterly increase since at least 2013, Kostin explained.
Moreover, the data shows mutual funds are “more overweight Growth than any time since mid-2018.”
“Mutual funds moved 66 bp away from Value, but still rank in the 79th percentile vs. the past 10 years. Hedge funds added 74 bp of exposure to Growth and cut length in Value by 30 bp. However, hedge funds are still less tilted to Growth than usual (508 bp vs. 728 bp average),” Kostin added in a client note.
Similarly, the analysis of hedge fund long portfolios shows that the weight of growth stocks with low or no profitability rose from 3.5% to 3.8%.
“In contrast, the weight of growth stocks with high profit margins continued to decline for the 3rd straight quarter. The rotation back into Growth and lower quality stocks has been a tailwind for returns in 2H 2022.”
Specifically, funds are adding to their exposure to Info Tech and Consumer Discretionary, with sub-sectors like 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 for META, while AAPL, AMZN, NVDA, and TSLA contributed to increased hedge fund length in Info Tech and Consumer Discretionary,” Kostin further explained.
Finally, the strategist named the 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 (NYSE:NOW), Charles Schwab (NYSE:SCHW), Uber (NYSE:UBER), UnitedHealth (NYSE:UNH), Visa (NYSE:V), and Wells Fargo (NYSE:WFC).
