Hedge Fund Trends: Value Funds Overweight Technology


After reviewing a flood of third quarter 13F reports, Evercore ISI has identified several hedge fund trends that vary depending on investing strategy.

Taken in aggregate, hedge funds have increased their overweighting in discretionary stocks while tapering their previous high level of enthusiasm for technology offerings.

Hedge Fund Trends Evercore Large cap exposure fund style

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Hedge fund trends: Value funds continue to be overweight technology

When considered individually, value hedge funds continue to be overweight technology but continue to reduce their positions along with the Evercore ISI core fund group, while growth group is underweight technology but has been steadily reducing this underweight over the past year, adding positoins.

In 2014 value funds tended to be significantly overweight discretionary along with being slightly overweight health care, industrials and materials stocks, with the reduction in the overweight in discretionary stocks being the most significant trend.  They were underweight energy, financials telcom and utility stock sectors.  Growth hedge funds were overweight financials, staples, energy and materials, with a trend towards adding to positions in the materials sector. Core funds were most heavily weighted towards technology, a noticeable gap in exposure of almost three times the exposure of its next largest sector exposure, discretionary. Core funds have been positively exposed to financials throughout 2014, but that exposure is on a downtrend.

Hedge Fund Trends Evercore Strategy Exposure


Hedge fund trends: Strongest investment methods

In terms of strategy, the report noted that expected growth and price momentum, trend following, and earnings momentum appeared to be the strongest investment methods, along with small size strategies.  Traditional value strategies, profit trends and price reversal strategies mostly lagged.  In regards to institutional funds, the small size strategy continues to remain solidly the most out of favor strategy, followed by traditional value, which has nonetheless grown in popularity. Profit trends and price reversal strategies remain negative among institutions, while historical growth and expected growth are positive along with earnings momentum.

Hedge Fund Trends Evercore Institutional Overweight


Hedge fund trends: Wells Fargo tops institutional holdings

In regards to individual names Wells Fargo & Co (NYSE:WFC) is near the top of the list of top institutional holdings, behind The Coca-Cola Co (NYSE:KO), which could be the target of a private equity fund, Wal-Mart Stores, Inc. (NYSE:WMT) and Procter & Gamble Co (NYSE:PG).  The list is heavy in financials as American Express Company (NYSE:AXP), American International Group Inc (NYSE:AIG), Goldman Sachs Group Inc (NYSE:GS) and U.S. Bancorp (NYSE:USB) follow Wells Fargo on the list of most held institutional stocks.

Hedge Fund Trends Evercore Institutional Underweight


While large banks are overweight in the institutional portfolio, two banks, JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC), are underweight in the institutional portfolio. Among the most underweight stocks are in the consumer sector, which includes Home Depot Inc (NYSE:HD), Comcast Corporation (NASDAQ:CMCSA), which struggled with its Time Warner Inc (NYSE:TWX) acquisition, and cigarette stocks Altria Group Inc (NYSE:MO) and Philip Morris International Inc. (NYSE:PM).

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