Key facts
- Hedge funds and mutual funds are showing historic buying levels in the financial sector.
- Hedge funds' net tilt toward Financials reached its largest position since prior to the GFC.
- Mutual funds' overweight in Financials is at its largest level since at least 2012.
- Investor sentiment on the AI trade is diverging, with some pulling back while others remain invested.
- Pershing Square has increased positions in Mastercard, Visa, Intercontinental Exchange, and S&P Global.
Investors are exhibiting a notable divergence in their approach to the artificial intelligence (AI) sector, with some pulling back while others maintain significant investments. However, a strong consensus is emerging within the financial markets, as both hedge funds and mutual funds have historically increased their allocations to the financial sector in recent months.
According to Goldman Sachs chief strategist Ben Snider, hedge funds boosted their net tilt toward Financials by over 300 basis points in the second quarter, reaching the largest position in the sector since before the Global Financial Crisis. Similarly, mutual funds also increased their exposure to financials last quarter, achieving their largest overweight since at least 2012.
This pronounced bullish sentiment towards financials follows a period of strong earnings reports from many companies within the sector. The convergence of investor interest in financials occurs against a backdrop of mixed performance in other favored stocks, and as institutional bullishness on the AI trade becomes increasingly divided.
Snider's team identified several stocks that are gaining favor among both hedge funds and mutual funds. Among these are Capital One Financial Group, Corpay, Fiserv, and Interactive Brokers Group. Additionally, six 'shared favorites' that appear on Goldman's lists include credit card giants Mastercard and Visa, alongside SpaceX, Boeing, and Thermo Fisher Scientific. Snider noted that these shared favorites have historically delivered strong returns with higher volatility, averaging a 17% annual return since 2013.
Big-name hedge funds are also signaling a bullish outlook on financials. Bill Ackman recently disclosed that Pershing Square has increased its holdings in Mastercard, Visa, Intercontinental Exchange, and S&P Global.