Hedge funds shifted from market-leading technology and health-care investments in the second quarter, adding to bets on a cyclical recovery with larger positions in industrial and financial shares—and cheaper relative valuations in the market.
Goldman Sachs analysts recently compiled holdings of 815 hedge funds that managed about $2 trillion as the third quarter began. From the start of the year until Aug. 19, the
index rose 6% while the Nasdaq 100 added 30%. That’s much better than the average equity hedge fund in Goldman’s analysis, which returned 2% over the same period. But hedge funds’ best ideas did beat the S&P, with a basket of top-50 holdings returning 18%.
Health-care stocks remain the most concentrated hedge fund holdings, at about 21%, well above their 14% in the Russell 3000 index. But hedge funds cut their health-care position by three percentage points in the past quarter. Technology, which has grown to 26% of the Russell 3000, was hedge funds’ greatest relative underweight at some 18% of allocation, down four percentage points from the prior quarter, nearly its largest underweight over the past decade, notes Goldman.
While financials remained an underweight versus the Russell 3000, hedge funds boosted allocations in those stocks the most, followed by industrials, which became an overweight. The sectors represented 7.2% and 9.4%, respectively, of portfolios. Other overweight sectors included consumer discretionary and communications services, while consumer staples was the largest underweight after technology.
Must Be September
The Dow’s revamp took effect, and Apple split its stock 4-for-1, while Tesla split 5-for-1. Both stocks rose, as did the major indexes, sustaining a five-month-long rally. The S&P 500 was up 7% in August, and 35% since April, its strongest run since 1938. Tech stocks then plunged, taking the indexes with them. The U.S. added 1.4 million jobs, and unemployment fell to 8.4%. But on the week the
Dow Jones Industrial Average
declined 1.8%, to 28,133.31; the S&P 500 fell 2.3%, to 3426.96; and the
skidded 3.3%, to 11313.13.
Living With Covid
With Covid-19 apparently staying around for the fall, companies began cutting employment to adjust to longer-term conditions. Consumers in July spent more but at a slower pace—more goods than services—and cities are running enormous deficits: Chicago projected a $1.2 billion shortfall, and New York City faces a $9 billion deficit over two years. The Centers for Disease Control and Prevention told states to prepare vaccination programs for early November. Meanwhile, August saw more than 28,000 Covid deaths, more than July, and the total surpassed 185,000.
Mnuchin on Relief
Treasury Secretary Steven Mnuchin told Congress that the administration was ready to negotiate a long-delayed relief bill with Democrats. Mnuchin suggested $1.5 trillion, above previous GOP offers, but less than the last Democratic plan of $2.2 trillion, which included direct payments to households, small-business grants, enhanced unemployment, and possibly funds to state and local governments. Separately, the White House announced a four-month moratorium on evictions.
Unrest and Dark Shadows
Clashes between protesters and counterprotesters produced more deaths, with a member of a right-wing group killed in Portland, Ore.; the suspect in that killing was later fatally shot by police. President Trump visited Kenosha, Wis., despite pleas by local officials not to inflame tensions. Trump claimed that figures in “dark shadows” and “thugs in planes” were behind the violence.
Direct Listings? Not Yet
The Council of Institutional Investors asked the Securities and Exchange Commission to review a New York Stock Exchange plan to allow companies to raise capital through direct listings. The filing could delay the plan, which the SEC staff approved in August.
Annals of Deal Making
Warren Buffett, turning 90, said Berkshire Hathaway bought 5% positions in five Japanese trading houses: Mitsubishi, Mitsui, Sumitomo, Marubeni, and Itochu…A Delaware court resolved a long battle over a failed merger between insurers Anthem and Cigna by saying both parties shared blame after the deal hit antitrust problems…Buyout investors led by Blackstone Group bid for railroad Kansas City Southern, which has an $18 billion market value…The Justice Department will reportedly bring an antitrust suit against Alphabet this month.
Write to Nicholas Jasinski at [email protected]