Hedge funds trim exposure to megacap tech stocks, banks say

By Carolina Mandl

NEW YORK (Reuters) – Global hedge funds reduced their exposure to mega cap tech stocks in recent days, ahead of the companies’ third-quarter earnings, two Wall Street banks said.

Microsoft (NASDAQ:), Alphabet (NASDAQ:), Amazon (NASDAQ:) and Meta Platforms (NASDAQ:) – four of the seven U.S. megacap stocks whose gains have powered the higher this year while the rest of the index has lagged – have earnings due this week. Apple (NASDAQ:) and Nvidia (NASDAQ:) are set to report next month.

Overall, the megacap companies are expected to post a 32.8% gain in earnings for the full year, while the rest of the S&P 500 sees a 2.3% decline over the same time, according to LSEG.

“We’d note that hedge funds have trimmed a bit of megacap tech risk recently. We’ve seen some long selling and short additions among the group,” JPMorgan Chase (NYSE:)’s positioning intelligence unit wrote in a note, taking into account how its clients rotated portfolios.

Goldman Sachs Group (NYSE:) showed a similar trend, adding hedge funds have net sold megacap tech stocks in the past two weeks.

Still, both banks, which manage two of the Wall Street’s biggest prime brokerage units, said megacap tech stocks continue to account for a relevant part of hedge fund’s book.

Goldman Sachs said megacaps account for almost 20% of its hedge funds’ clients total U.S. single stock net exposure, versus around 8% in January. “(It) is still near record highs, as managers have been selling other stocks at a much more rapid pace,” Vincent Lin, Goldman’s co-head of prime insights.

As hedge funds have also been selling stocks in other sectors, total exposure to megacap tech stocks remain at close to record levels back to 2018, JPMorgan said.