- Reuters / Richard Drew
Battle lines have been drawn between hedge funds and their mutual fund counterparts.
Their battlefield? The financial sector.
Large-cap mutual fund portfolios carry a 141-basis-point overweight position in financial stocks, relative to their benchmark, making it the group’s second-most bullish bet, according to data compiled by Goldman Sachs. At the same time, hedge funds have the industry as their most bearish position, with a 438-basis-point underweighting relative to the Russell 3000 Index.
This divergence in outlook gets even more pronounced when you drill down into the banks, long the most influential segment of the financial sector. Banks are the most underweight group out of 71 sectors for hedge funds, according to Goldman data. That stands in stark contrast to mutual funds, for which banks make up the third-most overweight group.
That mutual funds are relatively isolated in their preference for bank stocks isn’t particularly surprising, given the group’s recent history of bucking consensus. While many investors have thrown in the towel on the chances of President Donald Trump enacting any sort of bank-friendly major tax or deregulatory policy, mutual funds are staying strong in their conviction.
Nonetheless, if you dig deeper into the positioning war between mutual funds versus hedge funds, there is some semblance of consensus at the single-stock level. Most notably, JPMorgan and Citigroup are among the most popular holdings for both groups of investors.
The two types of funds also agree on tech stocks, with mutual and hedge funds holding matching 26% overweight positions, making that the most bullish sector for both groups.
To compare the two types of funds, Goldman Sachs analyzed the holdings of 803 hedge funds with $1.9 trillion of gross equity positions as well as 543 mutual funds with $2 trillion of assets under management.
- Goldman Sachs