Investing Update: Hedge Fund Buys & Holdings
What I'm buying, selling & watching
The stock market continued its run higher this week with the S&P 500 gaining 2.65% and the Nasdaq gaining 2.90%. For the year, that takes the S&P 500 up 18.04% and the Nasdaq up 35.99%.
Tuesday was the S&P 500 and Nasdaq’s best day since April. It was a day filled with a lot of green.
That giant rally was in reaction to the good inflation news. The inflation reading showed that it has continued to drift lower. In June 2022 CPI was 9.1% and now it sits at 3.2%. The expectation is that Fed is done raising rates and now the focus shifts to when will we see rate cuts.
The only inflation segments higher in October 2023 than in June 2022 is transportation and shelter. Otherwise most segments have seen sizable drops.
This has provided a big catalyst into year-end. You now have signs that inflation is coming down along with a still employed consumer. Money is going to continue being spent and the market seems to like what the road ahead is showing.
The S&P 500 chart below from Barchart illustrates just that. Lower highs and lower lows sure seem to be in the rearview mirror.
Here is a look at the subsets of the S&P 500.
We’re seeing much more to this rally than just the Magnificent 7. Just take a look at this wonderful chart showing just how much green there is in stocks YTD.
With six weeks of the year left and this much strength built up, we now have to start wondering when we see new all-time highs.
At this point what prevents that? Nvidia has earnings upcoming and if they disappoint that could disrupt it. But other than that, I don’t see a negative catalyst to knock this train off the tracks in the short-term.
All-Time Highs Looming?
Speaking off all-time highs. Were you aware that the market now sits less than 2% from a new all-time high (total return)? That’s just how strong the last few weeks have been.
The S&P 500 leader Nvidia (+244% YTD) sat at $398.87 on Halloween, October 31st. Now on November 17th it’s at $492.98. It’s up almost 24% in that time. The S&P 500 is up 8.3% in that short time.
Now we see also see more money coming into US large cap funds. That’s the largest inflow into US large caps since February of 2022.
I do still stand by the statement I had made in July in my Investing Update: Are New All-Time Highs Next?
With all that the stock market has endured in the first half, I think we do reach and even exceed those highs in the second half of the year.
What has happened recently is what I had said I wanted to see happen in a September update, Investing Update: Is a Recession Still Coming?
If this surge into the end of the year is to happen, I will be watching the high beta stocks and risk on assets in the coming weeks. If those start catching a bid higher, we very well could see a run higher into year end. Keep in mind the S&P 500 is still only 7.6% away from the all-time high of 4,796. I wouldn’t rule out a new all-time high in 2023 just yet.
The small-caps, high beta, high growth and unprofitable stocks have really bounced recently.
From September on I’ve said numerous times in my updates that this is setting up for a rally into year-end. It’s looking like Santa may be bringing investors a nice gift in the form of new all-time highs to close out 2023.
Hedge Fund Buys & Holdings
Also happening this week was the release of Q3 13F filings.
In looking at the buys from hedge funds in Q3, we can still see the popularity of mega-cap tech. Many of the buys were in 5 of the Magnificent 7 names. Meta, Google, Microsoft, Nvidia and Amazon.
The top 5 holdings through Q3 reflect a very similar picture. What surprised me is that Apple and Tesla each only appeared once on this entire list. I find that quite interesting.
Judging by the breakdown above, this chart below shouldn’t come as a big surprise.
What is surprising is how quickly hedge funds switched their exposure in mega-cap tech stocks. To start 2023 the exposure was in the 12th percentile. Today it sits in the 99th percentile. That the highest net exposure since 2016.
From a sector side, hedge funds really like insurance related stocks. It’s the highest exposure to the insurance industry in a number of years by a wide margin.
On the complete opposite end, they really dislike banks.
Moves I’ve Made
VanEck Semiconductor ETF This week I closed out my position in the SMH (VanEck Semiconductor ETF) at $162. I had started my position on October 13th at $83.50 share. That is the split adjusted figure as they did a 2-for-1 stock split in April.
In just over a years time I had a 94% return. For once in my life I pretty much nailed the absolute bottom in something. On October 15, 2022 in Investing Update: What’s Priced In? I said the following.
My feeling is the semiconductors sector is grossly oversold. Similar to the oil selloff in 2020. Demand for semis will be back. It's also the new modern day oil. Everyone relies on these in our everyday lives.
Since then, demand has surged and so has the SMH.
With the SMH setting a new all-time high this week and in having a sizable gain, I decided to ring the register. I still have significant exposure to the semi space with Nvidia as it’s still one of my biggest holdings.
The Coffee Table ☕
Adam Grossman wrote a timely post called Giving Sensibly. He touches on many good options for year-end deductions for charitable gifting and the things to review as we come to the end of the year.
I really enjoyed reading Mr Money Mustache’s post called The Arizona Experiment. He’s one of the more widely read financial bloggers and it was interesting to hear about his plans and ideas on his move to Arizona and start of a new life.
Kelly Evans wrote a piece worth reading called The recession rules are close to being triggered. She brings up the trends that are being seen and monitored with unemployment and the “Sahm rule.” It’s something that I kind of lost focus on and is worth reading. I enjoy that Kelly is writing again. Love her work!
The most watched 13F filing every quarter is Warren Buffett and Berkshire Hathaway. Here is a picture breaking down what the current holdings and percentage weighting in Berkshire.
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