By Naomi Rovnick and Nell Mackenzie
LONDON (Reuters) - Leading hedge funds and mutual funds are betting on gains outside the tech sector in coming months, Goldman Sachs research shows.
The ten stocks currently most favoured by both do not include any of the so-called Magnificent Seven tech titans that now dominate the S&P 500 index, according to research by the investment bank's prime brokerage unit.
Instead, it said, the shared top picks Goldman identified from analysing more than $5 trillion worth of hedge fund and mutual fund holdings are mostly in financial and medical-related sectors.
The basket of ten shared favourites includes Mastercard (NYSE:MA), Visa (NYSE:V) and U.S. healthcare groups United Health, Kenvue (NYSE:KVUE) and Humana (NYSE:HUM).
After intense crowding into tech megacaps, the Magnificent 7 group that includes Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Facebook owner Meta Platforms (NASDAQ:META) accounted for 13% of hedge funds' long positions last month, Goldman found, twice their weight at the start of 2023.
Yet signs of tech fatigue have emerged in recent weeks as hedge funds became increasingly concerned about their vulnerability to the fortunes of a small group of richly-valued businesses.
Hedge funds sold the largest volume of U.S. tech and media stocks since July in the week to Nov. 24.
Mutual funds, meanwhile, have been lukewarm on the Magnificent Seven for much of this year.
Goldman also said the stocks it has identified as "shared favourites" of hedge funds and mutual funds over the past 10 years have largely outperformed the wider stock market.
"Stocks that are constituents of both fund types' popular position baskets," the Goldman strategists wrote in their note to prime brokerage clients, "have beaten the S&P 500 in 60% of months since 2013".
Meanwhile, stocks that Goldman identified as both fund types' least favourite picks lagged the S&P benchmark index in 63% of months since 2013, the investment bank said.
Both hedge funds and mutual funds have underperformed the wider market year-to-date on average, Goldman found. US equity long-short funds have returned 8% while only 31% of large-cap mutual funds have beaten their market benchmarks.