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Hedge Funds Crowding Technology

The year 2017 had been witness to the greater role that technology played on Wall Street. Hedge funds in the technology sector have proven this through a consistent strength in returns. They have contributed to nearly 50% on the total rise in the market. This is indeed strong proof that there are great plans in store in hedge funds crowding technology.

A Promising Growth

Gondor Capital Management, the alternative investment manager for Morgan Stanley, reported that hedge funds from January to April 2017 focused strongly on information technology. Twenty nine percent of hedge fund exposure in North America had been concentrated into tech. The crowding is attributable to tech giants like Google, Apple, Netflix and Amazon.

The firm’s portfolio manager Vincent Au himself has made a statement. “I believe that hedge funds are already crowding the tech sector. I believe so especially the Google, Apple, Netflix, and Amazon. The holdings of the hedge funds paint that picture.”

Hedge Funds Crowding Tech Sector

Bank of America Meryll Lynch conducted a survey and found that considerable involvement in hedge funds are due to crowded tech trade. Positions in Facebook, Tencent, Alphabet and Alibaba have contributed to the strong gains in the market. Hedge funds that are not related to technology, media, and telecoms-focused (TMT) are shifting capital investments into the sector because of this. Alibaba, Tencent, Baidu and Netease are some of the prominent examples of such.

Hedge funds continue to grow stronger – net positioning had increased by 82 basis points by the second week of June 2017 alone. Mutual funds do not share the same success, however. Funds in the sector are reducing their positions in the industry.

“I believe tech stocks as a group are fairly valued and a few individual names are overvalued. As a value investor, it is difficult for me to describe this sector as cheap or inexpensive”, Au further adds. But he disagrees that the tech stock rally has ended because there are different sectors in technology and that they shouldn’t be simply lumped altogether.

Gondor Capital Management’s portfolio manager is currently placing his focus in opportunities in software, semiconductors, and storage. The firm currently involves itself with FANG stocks – the major players in internet space. FANG is made up of Facebook, Amazon, Netflix and Google. Au is firm in his belief that they had made the correct decision in hedge funds in tech stocks, whether or not there is crowding in the sector.

 

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