Written by: Zhao Ying
Source: Wall Street News
In the first quarter, US hedge funds and large mutual funds reached a rare consensus: sell software and pour into semiconductors, pushing the semiconductor bullish weighting to a record high.
According to Goldman Sachs' latest reports, "Hedge Fund Trends Monitor" and "Mutual Fund Fundamentals," this analysis covers 1,059 hedge funds (total equity holdings of $4.6 trillion) and 509 large active mutual funds (equity assets of $3.9 trillion). The reports show that hedge funds have achieved a 7% return this year, while only 30% of large mutual funds have outperformed their benchmarks, below the historical average of 37% since 2007.
The first quarter 13F filings data in the United States reveals a clear market consensus: hedge funds and mutual funds are simultaneously selling software stocks and pouring into the semiconductor sector. The scale of this portfolio shift has pushed the weight of semiconductors in hedge fund long portfolios to an all-time high.
In terms of portfolio structure, hedge fund net leverage has rebounded to the 85th percentile of the past five years, a near one-year high; meanwhile, the average short position of S&P 500 constituent stocks has risen to 3% of market capitalization, the highest level since 2011, indicating that the battle between bulls and bears in the market is heating up simultaneously.
Semiconductor holdings hit record highs, while software stocks experienced systemic selling.
Structural rotation within the technology sector was the most prominent theme this quarter.
Goldman Sachs data shows that the weighting of semiconductors in hedge fund long portfolios has risen to its highest level on record, while the weighting of software has fallen to its lowest level since 2019. In mutual funds, software holdings have fallen to their lowest level since 2012, and excluding Microsoft, mutual funds' overweighting of semiconductors relative to software is also the largest since 2012.
At the individual stock level, Microsoft (MSFT) was one of the stocks with the largest net selling by hedge funds and mutual funds last quarter. Mutual funds also reduced their holdings across the board in the other members of the "Big Seven". While hedge funds reduced their holdings in most of the "Big Seven", they achieved net buying in META and AAPL.
In the semiconductor sector, hedge funds increased their net holdings in LRCX, AMAT, and ASML; while mutual funds increased their net holdings in INTC and SITM.
Leverage and Cash: Hedge Funds Aggressive, Mutual Funds Conservative
Faced with escalating geopolitical tensions in the first quarter, the two types of institutions have shown a clear divergence in their response strategies.
Hedge funds initially reduced net leverage, but then quickly increased their positions as the market rebounded in the second quarter, with net exposure rising to a near one-year high. The total leverage ratio remains relatively high compared to historical levels.
Mutual funds, on the other hand, chose to increase their cash allocation, raising the cash-to-asset ratio from a historical low of 1.1% in early 2026 to 1.4% in early April. Nevertheless, this level is still extremely low relative to historical levels, indicating that mutual funds as a whole have not significantly withdrawn from the equity market.
Sector consensus and divergence: Industrials overweighted, technology sector divergent.
Regarding sector allocation, there is a high degree of consensus between the two types of institutions, but there are also significant exceptions. Both hedge funds and mutual funds overweight the industrial sector and underweight the information technology sector, but their portfolio adjustments are diametrically opposed.
Hedge funds increased their net skewness toward information technology by 853 basis points in the first quarter, the largest single-quarter change on record for the sector, while decreasing their net skewness toward industrials by 297 basis points. Mutual funds, on the other hand, did the opposite, increasing their exposure to industrials by 24 basis points and reducing their exposure to information technology by 20 basis points.
The two sectors with the most significant divergence are financials and consumer discretionary: mutual funds are overweight in financials but underweight in hedge funds; hedge funds are overweight in consumer discretionary but underweight in mutual funds.
Four "shared favorites" have outperformed the market this year.
Goldman Sachs has identified four stocks this quarter that appear on both the hedge fund VIP list (GSTHHVIP) and the mutual fund overweight list (GSTHMFOW) as "common favorites": Boeing (BA), Mastercard (MA), Marvell Technology (MRVL), and Visa (V). MRVL is a new addition to the list this quarter, while Citigroup (C) and Vertiv (VRT) have dropped off.
These four stocks have achieved a 10% return year-to-date, outperforming the equal-weighted S&P 500 index by 3 percentage points. Looking at a longer timeframe, since 2013, the "Common Favorites" portfolio has an annualized return of 16%, but with a standard deviation as high as 22%, indicating significantly higher volatility. Currently, the median stock in this portfolio has a price-to-earnings ratio of 34, a significant premium over the S&P 500 median stock's 18.
It is worth noting that all seven "giants" were included in the hedge fund VIP list, but at the same time, they were all under-allocated by mutual funds, which is a stark contrast in the attitudes of the two types of institutions toward this core asset.
