According to a recent Goldman Sachs report analyzing 13F data covering over 1,500 funds with a combined $8.5 trillion in holdings, institutional capital is undergoing a significant rotation. Semiconductor holdings have reached a record high, while software stocks are being systematically sold down to multi-year lows. Hedge fund net leverage has surged to the 85th percentile over the past five years, whereas mutual funds have been accumulating cash. All seven "Magnificent Seven" stocks are on the hedge fund VIP list but are collectively underweighted by mutual funds.

In the first quarter, U.S. hedge funds and large mutual funds reached a rare consensus: selling software stocks and buying into semiconductors, pushing the net long weight of semiconductors in hedge fund portfolios to a historical peak.

The analysis, based on Goldman Sachs' "Hedge Fund Trend Monitor" and "Mutual Fund Fundamentals" reports, covers 1,059 hedge funds (with total equity holdings of $4.6 trillion) and 509 large active mutual funds (with equity assets of $3.9 trillion). The report indicates that 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.

First-quarter 13F data reveals a clear market consensus: hedge funds and mutual funds are simultaneously offloading software stocks and piling into the semiconductor sector. The scale of this rotation has pushed semiconductor weightings in hedge fund long portfolios to an all-time high.

In terms of positioning, hedge fund net leverage has rebounded to the 85th percentile over the past five years, reaching a near one-year high. Concurrently, the average short interest for S&P 500 constituents has risen to 3% of market capitalization, the highest level since 2011, indicating heightened long-short market activity.

**Semiconductor Holdings Hit Record Highs, Software Faces Systematic Selling** The most notable theme this quarter is the structural rotation within the technology sector.

Goldman Sachs data shows that semiconductor weightings in hedge fund long portfolios have climbed to their highest level on record, while software weightings have fallen to their lowest since 2019. For mutual funds, software holdings have dropped to their lowest level since 2012. Excluding Microsoft, mutual funds' overweight position 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 in all other members of the "Magnificent Seven." While hedge funds trimmed most of the "Magnificent Seven," they achieved net purchases in Meta Platforms (META) and Apple (AAPL).

Regarding semiconductor stocks, hedge funds were net buyers of Lam Research (LRCX), Applied Materials (AMAT), and ASML (ASML). Mutual funds were net buyers of Intel (INTC) and SiTime (SITM).

**Leverage and Cash: Hedge Funds Aggressive, Mutual Funds Cautious** Faced with escalating geopolitical tensions in the first quarter, the two types of institutions adopted markedly different strategies.

Hedge funds initially reduced net leverage but quickly increased exposure as markets rebounded in the second quarter, bringing net exposure back to near one-year highs. Their gross leverage remains elevated relative to historical levels.

Mutual funds, however, opted to increase cash allocations, raising the cash-to-assets ratio from a historical low of 1.1% in early 2026 to 1.4% in early April. Despite this increase, the level remains historically very low, indicating that mutual funds have not made a significant retreat from equity markets overall.

**Sector Consensus and Divergence: Overweight Industrials, Tech Split** In sector allocation, the two institutions show high consensus in some areas but clear exceptions in others. Both hedge funds and mutual funds are overweight the industrial sector and underweight the information technology sector, but their adjustment directions are opposite.

Hedge funds increased their net tilt toward information technology by 853 basis points in Q1, the largest quarterly move on record for the sector, while reducing their net tilt toward industrials by 297 basis points. Mutual funds did the reverse, increasing industrial exposure by 24 basis points and cutting information technology exposure by 20 basis points.

The most pronounced divergences are in the financials and consumer discretionary sectors: mutual funds are overweight financials while hedge funds are underweight; hedge funds are overweight consumer discretionary while mutual funds are underweight.

**Four "Shared Favorites" Outperform Market This Year** Goldman Sachs screened for four "shared 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 addition this quarter, while Citigroup (C) and Vertiv (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 horizon, since 2013, the "shared 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 notable premium compared to the S&P 500 median stock's P/E of 18x.

It is noteworthy that all seven "Magnificent Seven" stocks are on the hedge fund VIP list but are simultaneously underweighted by mutual funds, highlighting a stark contrast in sentiment toward these core assets between the two investor groups.