(Bloomberg) -- U.S. hedge funds have been slashing positions in technology stocks, and started 2022 more tilted toward cheaper shares than at any time in over a decade, according to Goldman Sachs Group Inc (NYSE:GS).
“Filings show hedge funds positioning for a different equity market environment than the one that has characterized most of the last several years,” strategists led by Ben Snider wrote in a note to clients. Funds with $2.6 trillion of gross equity holdings have reduced positions in more expensive growth sectors in favor of energy and financials, he said.
The analysis looked at 13F filings for 788 hedge funds, released on Feb. 15. It showed that while the so-called “FAAMG” group of S&P 500 tech giants including Apple Inc (NASDAQ:AAPL). and Microsoft Corp (NASDAQ:MSFT). still rank as the most popular long positions, hedge funds continued to rotate their portfolios from growth into so-called value shares.
The repositioning as of Dec. 31 -- which has seen hedge funds become more tilted to value than they have been since 2011 -- has been reflected in market moves this year. The benchmark S&P 500 gauge fell into a correction on Tuesday, while the tech-heavy Nasdaq 100 has slumped 15% this year amid an increasingly hawkish tone from the Federal Reserve in light of soaring inflation.
Overall, U.S. equity hedge funds have lost 3% on average so far in 2022, according to Goldman.
Contributing to the losses was a ‘VIP list’ of 50 stocks that appear most often in the top 10 holdings of fundamental hedge funds, which has lagged the benchmark by 21 percentage points during the last 12 months. That’s the worst performance in the 20-year history of the basket, which includes Facebook (NASDAQ:FB) parent Meta Platforms Inc. and Netflix Inc (NASDAQ:NFLX).
“Sharply falling growth stock valuations, declining hedge fund leverage, retail selling, worsening equity market liquidity, and the underperformance of popular hedge fund long positions have created a vicious cycle,” the strategists said.
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