US funds cap megacap tech exposure as second-quarter filings stall
A near-even split in second-quarter institutional buying and selling of megacap technology stocks signals that major funds have reached their allocation limits, leaving the sector vulnerable to crowded-trade unwinds.
Filings submitted to the Securities and Exchange Commission reveal that major asset managers marginally decreased their allocations to dominant technology stocks in the three months through June. An analysis covering 6,371 pension and hedge funds indicates a tight race between buyers and sellers, with 44 percent trimming Magnificent Seven stakes and 42 percent expanding them.
The stalemate suggests institutional investors have maxed out their positions in these dominant equities due to internal risk parameters. Steve Sosnick, a market strategist at Interactive Brokers, noted that large firms are likely as long as they can be, which explains why strong corporate earnings have recently triggered sell-offs instead of rallies.
Without fresh capital from major buyers to absorb profit-taking, the market lacks a clear directional consensus. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, said the closely matched trading activity signals uncertainty over which specific companies will ultimately profit from massive industry spending.
Crowded trades unwind
The data highlights the risks of concentrated bets, particularly in artificial intelligence infrastructure. Bruno Schneller of Erlen Capital Management observed that AI-related equities shifted from a fundamental growth narrative into a highly leveraged momentum trade by the end of June.
This crowding made it difficult for hedge funds to exit positions profitably during the July market rout. JPMorgan noted in a recent report that speculators struggled to capture previous gains when unwinding these technology-oriented trades, amplifying the selloff through inadequate risk controls.
Tiger Global Management exemplified this caution by cutting stakes in Microsoft, Nvidia and Meta. The prominent hedge fund also slashed its Alphabet exposure by 45.4 percent to 5.8 million shares and reduced holdings in Taiwan Semiconductor, while SoftBank Group similarly trimmed the chipmaker.
Despite the broader tech pullback, institutional investors maintained a bullish tilt toward semiconductors. Nearly 48 percent of filers were net buyers of chip stocks compared to 34.5 percent who were net sellers, while the energy sector saw 40.3 percent of funds selling against only 28 percent buying.
Some managers are pivoting toward the physical supply chain supporting the digital economy. OnyxPoint established new positions in BP, Devon Energy and geothermal provider Fervo Energy, while also initiating a stake in data center operator Keel Infrastructure.
