“In the middle of this substantial price rally in the group, hedge funds have not been chasing,” Lin says. “They’ve been selling down their exposure in the sector. It is a reflection of hedge funds taking profits, taking some chips off the table.”
The subsector for semiconductors and related equipment is the most net-sold US subsector in the past month and now modestly net sold on the year, according to Prime Insights and Analytics. But despite recent signs of profit taking, hedge fund exposure to this subsector remains high: Since the start of last year, semiconductor and chip-maker equipment companies are still among the most net-bought (cumulative) US subsectors.
As chip stocks rally, semiconductor investments have mechanically increased as a share of portfolios for some managers. From a risk-management perspective, certain funds will need to sell semiconductor stocks to manage their exposure to the sector, Lin says.
Are hedge funds buying semiconductor stocks?
“We don’t think this is a regime shift from a fundamental perspective of hedge funds moving away from the AI theme,” Lin adds. “Obviously, semis have been the center of gravity when it comes to the AI infrastructure theme. Hedge funds have been embracing that theme and gaining a lot of exposure through this period.”
Semiconductor stock prices have climbed substantially since mid-April. That may partly reflect growing enthusiasm for the sector from retail investors, Lin says. He points out that asset managers that are benchmarked to an index have also been buying the stock category.
Are hedge funds bullish on stocks?
There are signs that funds have been hedging their portfolios in recent weeks amid record high stock prices, ongoing tensions in the Middle East, and economic data showing elevated inflation, Lin says. Benchmark Brent oil is trading above $100 per barrel, and bond yields spiked in May.
“These factors are weighing on equity sentiment broadly speaking,” Lin says.