Most crowded trade: US tech
According to the latest Bank of America Merrill Lynch survey, US tech was the most crowded trade, displacing short European equities (HEDJ). This is the first time since November 2018 that the US tech names have been the most crowded trade. Fund managers’ allocations to European equities jumped by nine percentage points to 9% overweight. This shift pushed short European equities to the second-most-crowded position.
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Tech makes a strong comeback after Q4 sell-off
According to hedge funds’ first-quarter filings so far, they’ve boosted their tech holdings. The technology sector (SMH) also saw the largest inflows last week. During the fourth quarter sell-off, tech stocks led the steep fall in the US markets. While the S&P 500 (SPY) and Dow Jones Industrial Average Index (DIA) fell 14.3% and 12.6%, respectively, in Q4, the tech-heavy NASDAQ Composite (QQQ) fell 17.1%. Among the tech names, Nvidia (NVDA), AMD (AMD), Apple (AAPL), and Micron (MU) led the sell-off with declines of 53.9%, 41.2%, 30.6%, and 29.7%, respectively.
However, after the steep correction in the fourth quarter, these stocks are back with a bang in 2019. Investors have again started turning around for these stocks as overall sentiment improved due to strong US data, optimism around the trade talks, and the Fed’s changed stance from hawkish to dovish. According to S&P Dow Jones Indices, four tech stock—Microsoft (MSFT), Facebook (FB), Apple (AAPL), and Amazon (AMZN)—accounted for ~12% of S&P 500’s total gains in the first two months of 2019.
The long US dollar (UUP)(USDU) was the third-most-crowded trade, according to 15% of investors. Investors should, however, consider the most crowded trades with a grain of salt. Mostly at the extremes, these trends work as contrarian indicators.