Hedge fund crowding hit a new record in 2023 as traders piled into bullish bets on the 'Magnificent Seven'

By Joseph Adinolfi

Hedge funds went all-in on the "Magnificent Seven" this year, defying warnings from Wall Street analysts.

They and their investors have reaped huge gains as a result, according to a report from a team of analysts at Goldman Sachs Group.

What's more, their increasingly bold bets have pushed hedge-fund concentration to record highs, while also boosting hedge-fund returns, according to data tracked by Goldman.

Fortunately for their investors, these seven megacap technology names have powered virtually all of the S&P 500's year-to-date gains.

"The combination of elevated hedge fund concentration and the strong performance of popular stocks has supported returns this year but lifted our crowding index to a record high," said a Goldman team led by David Kostin, the investment bank's chief U.S. equity strategist, in the latest edition of Goldman's hedge fund trend monitor.

Thanks mostly to this preference for megacap technology names, Goldman's "hedge fund VIP" index has returned 31% year-to-date, handily beating the S&P 500 SPX, which has seen a total return of roughly 19% including dividends, according to Goldman.

When the market started softening over the summer, hedge funds shrewdly doubled-down, lifting their exposure to the "Magnificent 7" to a new high. As a result, these names now account for 13% of hedge-fund long positions tracked by Goldman, roughly twice the level from the beginning of 2023.

Several megacap technology names were included among the most popular positions tracked by Goldman, with Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), Alphabet Inc. (GOOGL)and Nvidia Corp. (NVDA) all ranking at the top. The "Magnificent Seven" also includes Apple Inc. (AAPL) and Tesla Corp. (TSLA)

A list of the top 50 most popular hedge-fund holdings can be found below.

Goldman included 735 hedge funds with $2.4 trillion in gross equity positions in its analysis, with $1.6 trillion of that held long and nearly $800 billion held short.

The next critical test for the Mag seven is set to arrive after the close on Tuesday, when Nvidia reports earnings. The chip maker has seen the biggest percentage-point gain among the Mag Seven in 2023, with its shares up 240% year-to-date.

Options traders are betting on big moves in after-hours trading and once markets reopen on Wednesday ahead of the Thanksgiving holiday, as MarketWatch's Tomi Kilgore reports.

See: Nvidia stock options ready for some fireworks after earnings

Many Wall Street macro strategists were bearish on stocks heading into 2023. And many remained wary even as stocks climbed this year.

-Joseph Adinolfi

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11-21-23 1451ET

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