Hedge funds have gotten more bearish, according to Jefferies Equity Strategy analyst Steven DeSanctis and his team. Short exposure has increased to levels last seen in 2019, the first pandemic year.
According to Jefferies’ analysts, “Big sector shifts drove much bigger OW [Overweight] to Cyclicals, [and] UW [Underweight] to Secular Growth.” Stocks in the health care sector fell to a short position and the sector “is now “significantly UW relative to its weight in the S&P 500.” The tech and communications services sectors did boost their weight in June, and growth stocks are now Underweight by nearly 6% relative to the S&P 500.
Jefferies also tracks high- and low-turnover hedge fund portfolios. The top stocks in the high-turnover group were Amazon (with a portfolio weight of 0.8), Bookings (0.7 portfolio weight), Visa (0.6) and these six stocks all tied with weights of 0.5: Boston Scientific, S&P Global, AT&T, Workday, Citigroup and Alphabet.
Among the low-turnover group, Seagen (4.1) was the leader, followed by Snowflake (3.3), Microsoft (2.4), JD.com (1.8) and Incyte (1.7).
Based on hedge fund filings for the period ending in March, the 10 most popular stocks among hedge funds and long-only mutual funds were Microsoft (net long weight of 6.6), Amazon (6.2), Meta Platforms (4.4), Alphabet (4.1) and Visa (2.9). Among the long-only funds, 30.1% own Microsoft, 24.7% own Amazon, 22.9% own Alphabet, 22.5% own Visa and 21.6% own UnitedHealth stock.
An interesting Jefferies grouping is what the firm calls its Battleground portfolio, which includes stocks that hedge funds are short and are also held by long-only funds. Apple’s net short weight in this group is −2.0, while 23.9% of the long-only funds own Apple stock. Hedge funds are short HP (−1.8), DexCom (−1.6) and Bristol-Myers Squibb and Charter Communications (−1.5 each). Among the long-only funds, 6.5% own HP stock, 13.5% own DexCom, 10.7% own Bristol-Myers Squibb and 9.0% own Charter Communications.
Hedge funds loved these six stocks at the end of the March reporting period: Microsoft (overall weight of 6.6), Amazon (6.2), Meta Platforms (4.4), Alphabet (4.1), Visa (4.0), and Avis Budget (3.9). The most-shorted stocks by hedge funds were the same as those named earlier.
Jefferies’s long-to-short portfolio includes stocks that had a positive average weight among all hedge fund portfolios on March 31 and a negative average weight on April 30. The big loser was Apple, down 4.02, followed by Intel (down 0.99), Verizon (down 0.97), Exxon Mobil (down 0.87) and Abbott Labs (down 0.74).
The top short-to-long stocks were CDK Global (up 0.3), and seven that were up 0.2: Kohl’s, Enphase Energy, Arvinas, LKQ, NXP Semiconductors, NextEra Energy, CNX Resources and Macy’s.
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