Hedge Fund Q1 Review: Everyone Is Selling Software and Buying Chips
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Hedge Fund Q1 Review: Everyone Is Selling Software and Buying Chips
Hedge fund net leverage surged to the 85th percentile over the past five years, while mutual funds did the opposite—hoarding cash. All of the “Magnificent Seven” made it onto hedge funds’ VIP list but were collectively underweight in mutual fund portfolios.
Navigating Web3 tides with focused insightsBy Zhao Ying
Source: WallStreetCN
In Q1, U.S. hedge funds and large actively managed mutual funds reached a rare consensus: selling software stocks and rotating into semiconductors—pushing semiconductor long exposure in hedge fund portfolios to a record high.
According to Goldman Sachs’ latest reports—“Hedge Fund Trend Monitor” and “Mutual Fund Fundamentals”—this analysis covers 1,059 hedge funds (with total equity holdings of $4.6 trillion) and 509 large actively managed mutual funds (with equity assets of $3.9 trillion). The reports show hedge funds delivered a 7% return YTD, while only 30% of large mutual funds outperformed their benchmarks—a figure below the historical average of 37% since 2007.
Q1 13F filings reveal a clear market consensus: both hedge funds and mutual funds are simultaneously selling software stocks and buying semiconductors. This rotation is so pronounced that semiconductor exposure in hedge fund long portfolios has reached an all-time high.
In terms of positioning, hedge fund net leverage has rebounded to the 85th percentile over the past five years—its highest level in nearly a year. Meanwhile, the average short interest ratio for S&P 500 constituents rose to 3% of market cap—the highest since 2011—indicating intensifying long/short activity across the market.
Semiconductor Exposure Hits Record High; Software Faces Systematic Reduction
Structural rotation within the technology sector was the most prominent theme this quarter.
Goldman Sachs data shows semiconductor weight in hedge fund long portfolios has risen to its highest level on record, while software weight has fallen to its lowest since 2019. Among mutual funds, software holdings have dropped to their lowest level since 2012; excluding Microsoft, mutual funds’ relative overweight in semiconductors versus software is also the largest since 2012.
At the individual stock level, Microsoft (MSFT) ranked among the top stocks net sold by both hedge funds and mutual funds last quarter. Mutual funds also reduced positions across the rest of the “Magnificent Seven.” While hedge funds cut exposure to most of the Magnificent Seven, they posted net buying in META and AAPL.
Among semiconductor names, hedge funds added LRCX, AMAT, and ASML; mutual funds added INTC and SITM.
Leverage and Cash: Hedge Funds Aggressive, Mutual Funds Cautious
Amid escalating geopolitical tensions in Q1, the two types of institutions adopted markedly divergent strategies.
Hedge funds initially trimmed net leverage but subsequently ramped up positions rapidly as markets rebounded in Q2—lifting net exposure to its highest level in nearly a year. Overall, total leverage remains relatively elevated versus historical norms.
Mutual funds instead raised cash allocations, increasing cash-to-assets from a historic low of 1.1% at the start of 2026 to 1.4% in early April. Even so, this level remains historically very low—suggesting mutual funds have not meaningfully withdrawn from equities overall.
Sector Consensus and Divergence: Overweight Industrials, Technology Split
Sector positioning reveals broad agreement—but also notable exceptions. Both hedge funds and mutual funds are overweight industrials and underweight information technology, yet their rebalancing directions are diametrically opposed.
Hedge funds increased net IT exposure by 853 basis points in Q1—the largest single-quarter change on record for the sector—while reducing net industrial exposure by 297 basis points. Mutual funds did the reverse: adding 24 basis points to industrials and cutting 20 basis points from IT.
The two sectors with the starkest divergence are financials and consumer discretionary: mutual funds are overweight financials, while hedge funds are underweight; hedge funds are overweight consumer discretionary, while mutual funds are underweight.
Four “Mutual Favorites” Outperform the Market YTD
Goldman Sachs identified four stocks appearing on both the hedge fund VIP list (GSTHHVIP) and the mutual fund overweight list (GSTHMFOW)—dubbed “Mutual Favorites”: Boeing (BA), Mastercard (MA), Marvell Technology (MRVL), and Visa (V). MRVL is a new addition this quarter, while Citigroup (C) and Vertiv (VRT) exited the list.
These four stocks delivered a 10% return YTD—outperforming the equal-weighted S&P 500 index by three percentage points. Over the longer term, since 2013, the “Mutual Favorites” portfolio has posted an annualized return of 16%, but with a high standard deviation of 22%, reflecting significantly elevated volatility. The median P/E ratio for stocks in this portfolio currently stands at 34x—substantially above the S&P 500’s median P/E of 18x.
Notably, all members of the “Magnificent Seven” appear on the hedge fund VIP list, yet all are underweight in mutual fund portfolios—highlighting a sharp contrast in institutional attitudes toward this core asset group.
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