Recent data from Goldman Sachs indicates a shift in hedge fund and mutual fund positioning towards cyclicals and AI beneficiaries.
Analyzing $6.1 trillion in equity positions, Goldman Sachs' reports reveal a notable increase in equity exposure for both hedge funds and mutual funds at the beginning of Q1 2024.
"Hedge funds and mutual funds have boosted exposures to equities this year," Goldman Sachs notes, with hedge fund net leverage nearing its highest level over the past year and mutual fund cash balances dropping to record lows.
This increase in equity exposure is said to be accompanied by a focused investment in areas poised to benefit from the AI boom.
Specifically, Goldman Sachs states that hedge funds and mutual funds have increased their exposure to Utilities and AI-related sectors.
Among their favorite stocks, seven "shared favorites" emerged: Danaher (NYSE:DHR), Fiserv (NYSE:FI), KKR & Co. (NYSE:KKR), MasterCard (MA), Uber (NYSE:UBER), Visa (NYSE:V), and Vertiv Holdings Co. (NYSE:VRT).
Hedge funds, in particular, have expanded their investments into AI infrastructure, which has shown remarkable performance. Goldman Sachs highlights, "A basket of stocks positioned to benefit from AI infrastructure investments has performed best YTD, beating the S&P 500 by 16 percentage points."
They note that this shift has led to a record-high 6.5% allocation to semiconductors within hedge fund portfolios, driven largely by Nvidia's (NASDAQ:NVDA) impressive 129% YTD surge.
Additionally, the firm says hedge funds and mutual funds have maintained pro-cyclical tilts, favoring sectors such as Financials, Industrials, and Consumer Discretionary. According to the bank, this strategy has paid off, with cyclicals outperforming defensives by 5 percentage points earlier this year, although this trend has reversed slightly since Q2.