Institutional money managers increased their bets on Technology, Industrials, and Communication Services in the second quarter, while reducing holdings in Healthcare, Financials, and Consumer Staples, according to Morgan Stanley’s review of 13F filings.
Technology was the standout, with allocations climbing 1.9% from the previous quarter. Industrials and Communication Services both posted a 0.6% rise. In contrast, Healthcare saw a 1.3% pullback, while Financials and Staples each slipped 0.7%.
The rotation was also evident in small-cap equities. Technology again led with a 2.3% gain, followed by Consumer Discretionary, which added 0.9%. Healthcare and Staples declined by 0.8% and 0.9%, respectively. Hedge funds likewise boosted exposure to small-cap Financials and Communication Services.
Despite the broader uptick in Technology, hedge funds remain structurally underweight in the sector relative to benchmarks—a trend in place since 2017 due to the dominance of megacap tech names. Instead, hedge fund positioning shows a heavy skew toward small-cap Healthcare, which represents 28% of their small-cap AUM compared with 10% in the Russell 2000. Much of this concentration is linked to biotechnology plays.
From a geographic perspective, U.S.-based funds continue to dominate S&P 500 ownership, making up 81% of total assets. Energy is the most U.S.-concentrated sector, with 86% of holdings in domestic hands, while Real Estate has the largest international footprint, with 22% owned by overseas investors.
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