Hedge funds are piling into healthcare stocks at record levels, Goldman Sachs says

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• Hedge fund positioning in healthcare stocks reached a record 10 percentage points overweight compared to the Russell 3000 index, Goldman Sachs said Friday.
• The rotation was primarily fueled by soaring interest in biotech names. Recent weeks have seen investors pile into companies racing to introduce the first coronavirus treatment.
• Positioning has grown more crowded both within and across funds in the second quarter, Goldman added, as managers rotate even further toward growth stocks and defensive plays.
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Hedge funds are reaching record levels of exposure to healthcare stocks as the coronavirus pandemic rages on, Goldman Sachs said Friday.

The sector sits 10 percentage points overweight across hedge funds compared to the Russell 3000 sector, the bank added, making it the most favored industry among managers. Funds monitored by Goldman are nearly 25% concentrated in healthcare equities, with tech companies following with a 20% weighting.

Biotech stocks have been the biggest beneficiary and reached a 2.8 percentage point overweight through the start of the second quarter. The shift has come at a time where investors are rewarding companies working towards COVID treatments. Moderna, Gilead, and Sorrento Therapeutics have all skyrocketed in recent sessions after boasting positive results in their efforts to produce a coronavirus treatment.

Investors’ optimism accelerated hedge fund inflows to the sector, Goldman said in a note, helping cement it as one of the best performers year-to-date.

Read more: Michael Gayed’s fund relied on just one market signal to book a huge profit when the coronavirus crushed stocks – and his returns are still soaring. He breaks down his simple approach to crisis investing.

The stock market’s wild moves through the year have also driven greater concentration within fund portfolios, the team led by Ben Snider wrote. The start of the second quarter already featured historically high weighting in growth stocks and defensive industries, and recent weeks pushed even more fund cash into popular mega-caps including Amazon and Microsoft.

The average fund now holds 71% of its portfolio in its top 10 stakes, just one percentage point below the record high set in 2019, according to Goldman. 

Commonality across fund holdings has also soared. The firm’s crowding index matches the record high set in the first quarter of 2016. The heavy interest in growth over value stocks helped push Goldman’s Hedge Fund VIP basket to a record high in both absolute terms and relative to the S&P 500.

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