Hedge funds slashed their exposure to U.S. Big Tech stocks in early 2025 and rotated into Chinese equities, according to Goldman Sachs’ latest Hedge Fund Trend Monitor.
The quarterly analysis, based on 13-F filings from 684 hedge funds managing $3.1 trillion in gross equity positions, shows a shift away from the “Magnificent 7” stocks, even as those names outperformed.
“Funds cut net positions most in Microsoft (NASDAQ:MSFT),” Goldman noted, placing the tech giant on its list of “Falling Stars” — a group of stocks that saw the largest decline in hedge fund ownership.
Apple (NASDAQ:AAPL) also lost ground, slipping from the sixth to the ninth spot on Goldman’s Hedge Fund VIP list, displaced by Taiwan Semiconductor (NYSE:TSM), Netflix (NASDAQ:NFLX), and Uber (NYSE:UBER).
Despite the pullback, Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), Microsoft, Nvidia (NASDAQ:NVDA), and Alphabet (NASDAQ:GOOGL) still top the list of most-owned stocks.
The timing of these trades proved costly. “These rotations proved poorly timed as the Mag 7 has returned +12% during 2QTD while trade tensions have weighed on China ADRs,” Goldman strategists led by Ben Snider noted.
Hedge funds added to China ADRs during the first quarter, increasing exposure to names like Alibaba (NYSE:BABA), PDD Holdings (NASDAQ:PDD), Baidu (NASDAQ:BIDU), and JD.com (NASDAQ:JD), even as geopolitical uncertainty loomed.
While the basket of China ADRs outperformed in Q1, it has underperformed the equal-weight S&P 500 by five percentage points since the start of Q2.
Still, performance held up. “Solid stock-picking has allowed U.S. equity long/short hedge funds to maintain a return of +1% YTD despite a volatile macro backdrop,” the report said. The VIP basket of most popular long positions outperformed, up 6% year-to-date.
The overall hedge fund landscape remains heavily tilted toward high leverage. Gross leverage hit a record, fueled by surging short interest.
Hedge funds entered Q2 with $948 billion in single-stock shorts and $218 billion in ETF shorts. Short interest in the median S&P 500 stock climbed to 2.3% of float, the highest since the 2021 short squeeze.
Despite the volatility, hedge funds stayed the course on artificial intelligence. Exposure to AI-related stocks remained steady, with new VIP entries from semiconductor and software names such as Lam Research (NASDAQ:LRCX) and Micron (NASDAQ:MU).
In sector positioning, hedge funds cut their net tilt to Health Care, especially in Biopharma, while increasing allocations to Information Technology, Consumer Discretionary, and Industrials.