Increasing healthcare holdings, selling technology stocks! An article analyzing hedge funds' $2.2 trillion positions.

In the first quarter of this year, hedge funds were bullish on their individual stocks but bearish on the entire US stock market.

They sold banks and technology stocks while increasing their holdings in defensive stocks such as healthcare.

The above is the key conclusion drawn by Goldman Sachs after analyzing the positions of 740 hedge funds.

As of the end of March, the total holdings of these hedge funds amounted to $22 trillion.

This year is a "stock picker's market"

Goldman Sachs data shows that hedge fund managers seem to generally believe that 2023 will be a so-called "stock picker's market."

Goldman Sachs strategist Ben Snider wrote: "Hedge funds have almost no confidence in the overall market trend, but they are very confident in their own stock picking abilities, especially in long positions."

"... Hedge funds hold a large net short position in stock futures and ETFs, but their short positions in individual stocks are still close to historical lows, accounting for only 1.7% of the float."

The most popular stocks among hedge funds this year are Microsoft, Amazon, Meta, Alphabet, Uber, Apple, and Nvidia.

Increase holdings in defensive industries and reduce holdings in technology stocks

At the industry level, hedge funds increased their exposure to defensive stocks in the first quarter.

Compared to the Russell 3000 Index, healthcare stocks are the largest and most heavily increased sector in hedge fund holdings, followed by consumer staples and utilities.

As of the end of March, healthcare stocks accounted for 25.2% of hedge fund portfolios, while healthcare stocks in the Russell 3000 Index accounted for 13.5%.

Although there was a capital inflow in the first quarter, the weight of utilities and consumer staples sectors in the index was still moderately low compared to the index.

Other stocks that were increased include cyclical industrial and raw material stocks, but their proportions in the index and hedge fund portfolios are relatively small.

Compared to the Russell 3000 Index, technology stocks were the most heavily reduced stocks by hedge funds, with holdings accounting for 13.9% and 24.1%, respectively. Financial stocks were the second largest reduced stocks in the Russell 3000 Index.

Individual stock holding dynamics

However, hedge funds saw some bargains in the financial sector in the first quarter.

From the increase in the number of hedge funds holding JPMorgan Chase, BlackRock, and Morgan Stanley stocks, they were the most popular new stocks in the first quarter.

In the first quarter of 2023, the stocks that hedge funds bought the most were National Instruments (NATI), Walmart, GE Healthcare, Honeywell, Norfolk Southern, Estée Lauder, and Pfizer.

Goldman Sachs refers to these companies as "Rising Stars." Goldman Sachs data shows that since 2002, the stocks in this basket have averaged 0.59 percentage points higher in the next quarter. On the contrary, it is also effective: hedge funds that reduce the most stocks in a quarter will underperform their peers by 0.60 percentage points in the next quarter.

In the first quarter of this year, "Falling Stars" included Qualcomm, DXC technology (DXC), Textron, Bunge, Juniper Networks (JNPR), Southwest Airlines, Welltower (WELL), Dominion Energy (D), Vertex Pharmaceuticals (VRTX) and Cisco.