How Hedge Funds, Mutual Funds Are Playing The IT Sector

In a new report, Goldman Sachs analyst Amanda Sneider cross-referenced Goldman’s hedge fund and mutual fund holdings data and looked for Information Technology stocks that are popular long holdings and short holdings among both hedge funds and mutual funds. While Goldman is overweight on Info Tech stocks as a whole, the report indicates that many institutional investors are selectively long and short some big-name stocks in the space.

Difficult alpha
According to Sneider, the Info Tech sector historically offers high return dispersion relative to other areas of the market. While this characteristic typically means that there is greater opportunity to beat the market via stock selection within the Info Tech space, Sneider believes that this type of alpha will be harder to come by in the near term.
“We expect continued low return dispersion relative to history, making stock selection within the sector more difficult,” Sneider explains.

Current allocations
The 839 hedge funds included in Goldman’s analysis represent $2.2 trillion in gross equity. These funds currently have 17 percent of their allocation in Info Tech stocks and ETFs, second only to the Consumer Discretionary sector (21 percent).

The 493 large-cap mutual funds included in the analysis represent $1.6 trillion in assets under management (AUM). Following the Russell reconstitution at the end of June, the weighting of the Info Tech sector in the Russell 1000 Value Index will increase from about 9 percent to about 12 percent.

Top names
The Info Tech names that Sneider found were most popular among both hedge funds and mutual funds include Visa Inc V, MasterCard Inc MA, Google Inc GOOGGOOGL and Facebook Inc FB.

In addition to the overlapping long positions, Sneider found that International Business Machines Corp IBM and Intel Corp INTC are two Info Tech names that are least favored by both mutual funds and hedge funds.

Goldman currently has Buy ratings on Facebook, MasterCard and Visa, Neutral ratings on Google and IBM and a Sell rating on Intel.