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Investing.com -- Institutional investors rotated into Technology, Industrials and Communication Services during the second quarter while trimming exposure to Healthcare, Financials and Consumer Staples, according to Morgan Stanley’s analysis of the 13F filings.
Technology saw the sharpest increase, with allocations rising 1.9% from the prior quarter. Industrials and Communication Services both added 0.6%.
On the other side, Healthcare dropped 1.3%, Financials fell 0.7% and Staples also declined 0.7%.
The rotation extended into small caps, where Technology led with a 2.3% gain and Consumer Discretionary rose 0.9%.
Healthcare and Staples were cut by 0.8% and 0.9%, respectively. Hedge funds also increased exposure to small-cap Financials and Communication Services.
Despite the broader pickup in Technology, hedge funds have kept an underweight in the sector compared with benchmarks.
That trend has been in place since 2017, largely tied to the rapid growth of megacap names.
Instead, hedge funds continue to show a strong tilt toward small-cap Healthcare, which makes up 28% of their small-cap assets under management versus 10% in the Russell 2000. This positioning is driven by concentrated bets in biotechnology stocks.
Geographically, U.S.-domiciled funds dominate S&P 500 ownership, accounting for 81% of total assets.
Energy remains the most North America-dominated sector with 86% held by U.S.-based funds, while Real Estate shows the highest share of international ownership at 22%.