US hedge funds and large mutual funds reached a rare consensus in Q1: selling software and piling into semiconductors, pushing the semiconductor overweight to a record high.
According to the latest Goldman Sachs reports "Hedge Fund Trend Monitor" and "Mutual Fund Fundamentals," this analysis covers 1,059 hedge funds (with total equity holdings of $4.6 trillion) and 509 large actively managed mutual funds (with equity assets of $3.9 trillion). The reports show hedge funds have achieved a 7% return year-to-date, while only 30% of large mutual funds have outperformed their benchmarks, below the historical average of 37% since 2007.
Q1 13F filings reveal a clear market consensus: hedge funds and mutual funds are simultaneously selling software stocks and flocking to the semiconductor sector. This rotation has been so forceful that it has pushed the semiconductor weighting in hedge fund long portfolios to an all-time high.
In terms of positioning, hedge fund net leverage has rebounded to the 85th percentile of the past five years, near a one-year high. Concurrently, the average short interest for S&P 500 constituents has risen to 3% of market cap, the highest level since 2011, indicating a simultaneous intensification of bullish and bearish bets.
Semiconductor Positioning Hits Record, Software Faces Systematic Reduction
The most notable theme this quarter is the structural rotation within the technology sector.
Goldman Sachs data shows the semiconductor weighting in hedge fund long portfolios has climbed to its highest level on record, while the software weighting has dropped to its lowest since 2019. For mutual funds, software holdings have fallen to their lowest level since 2012. Excluding Microsoft, mutual funds' overweight in semiconductors relative to software is also the largest since 2012.
At the individual stock level, Microsoft (MSFT) was one of the largest net sells for both hedge funds and mutual funds last quarter. Mutual funds also reduced holdings across all other members of the "Magnificent Seven." While hedge funds trimmed most of the "Magnificent Seven," they achieved net increases in Meta Platforms, Inc. (META) and Apple (AAPL).
Regarding semiconductor stocks, hedge funds made net purchases of Lam Research (LRCX), Applied Materials (AMAT), and ASML Holding NV (ASML). Mutual funds made net purchases of Intel (INTC) and SiTime Corp (SITM).
Leverage and Cash: Hedge Funds Aggressive, Mutual Funds Conservative
Faced with escalating geopolitical tensions in Q1, the two types of institutions adopted clearly different strategies.
Hedge funds initially reduced net leverage but then quickly added positions as the market rebounded in Q2, with net exposure recovering to near a one-year high. Their gross leverage remains elevated relative to historical levels.
Mutual funds, however, chose to increase cash allocations, raising the cash-to-assets ratio from a historical low of 1.1% in early 2026 to 1.4% by early April. Despite this, the level remains extremely low historically, indicating that mutual funds have not made a large-scale retreat from equity markets overall.
Sector Consensus and Divergence: Industrials Overweight, Tech Divergence
There is high consensus in sector allocation between the two institutions, but with notable exceptions. Both hedge funds and mutual funds are overweight the Industrials sector and underweight the Information Technology sector, but their adjustment directions are completely opposite.
Hedge funds increased their net tilt towards Information Technology by 853 basis points in Q1, the largest single-quarter move for the sector on record, while simultaneously reducing their net tilt towards Industrials by 297 basis points. Mutual funds did the opposite, increasing their Industrials exposure by 24 basis points and cutting Information Technology by 20 basis points.
The sectors with the most pronounced divergence are Financials and Consumer Discretionary: mutual funds are overweight Financials while hedge funds are underweight; hedge funds are overweight Consumer Discretionary while mutual funds are underweight.
Four 'Common Favorites' Outperform Market Year-to-Date
Goldman Sachs screened for four "Common Favorite" stocks this quarter that appear on both the hedge fund VIP list (GSTHHVIP) and the mutual fund overweight list (GSTHMFOW): Boeing (BA), MasterCard (MA), Marvell Technology (MRVL), and Visa (V). MRVL is a new entrant this quarter, while Citigroup (C) and Vertiv Holdings LLC (VRT) exited the list.
These four stocks have delivered a 10% return year-to-date, outperforming the equal-weighted S&P 500 index by 3 percentage points. Over a longer cycle, since 2013, the "Common Favorites" portfolio has achieved an annualized return of 16%, but with a high standard deviation of 22%, indicating significantly elevated volatility. The median stock in this portfolio currently trades at a P/E ratio of 34x, a significant premium to the S&P 500 median stock's 18x.
It is noteworthy that all members of the "Magnificent Seven" are on the hedge fund VIP list but are simultaneously underweighted by mutual funds, highlighting a stark contrast in attitude between the two institutions towards these core assets.
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