During the Fed's violent interest rate hike cycle for more than a year, technology growth stocks have not been favored by mainstream investors . The funds are all chasing the high-speed "Nvidia train" with their feet.
According to regulatory documents, well-known asset managers including State Street, Fidelity, and Amundi have reduced their positions in Nvidia in the first quarter of this year. A study by Goldman Sachs analysts also showed that in fact, at the beginning of the year, most mutual funds reduced their positions in Nvidia, and then watched as Nvidia, which they considered "too expensive", nearly doubled.
(Nvidia daily chart, source: TradingView)
According to an interview with Wall Street traders by the British "Financial Times", seeing that the innovation of artificial intelligence has been elevated to the height of the "new paradigm" of human society, fund managers are now frantically buying Nvidia's stock, as well as AI-related The growth stock AMD, and the semiconductor ETF fund.
All of a sudden, it's a "must-buy" stock
Brian Bost, co-head of Americas securities derivatives at Barclays Bank, said that after 2022, many people will start to underweight growth stocks, so they are now in a state of being forced into the market to buy.
This successive buying has also pushed Nvidia's stock price to maintain its recent high volatility. On the other hand, although the daily trading volume of stocks has doubled to 32 billion US dollars, the demand for buying transactions is still not met in many cases, showing the reluctance of "morning train" investors to sell.
This situation also occurs in quantitative funds, which means that the cold algorithm has also been caught off guard. A Wall Street technology trader said: "I have never seen such a drastic change in the guidance of a listed company. After the (Nvidia) financial report was announced, the entire market combined and found that this stock has become a 'must hold target. ’, and the race to the market begins.”
For many mutual funds, the actual percentage of holdings in technology stocks is lower than that of technology stocks in the S&P 500 index, which is also the standard for measuring their performance. At the end of 2022, Nvidia accounted for 1.1% of the S & P 500 index, and now it has risen to 2.7%. Many fund managers are underweighting technology stocks because they fear that their holdings will become too concentrated, which has also made them underperform this year.
This problem is especially acute for some growth funds. In the Russell 1000 Growth Index, Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta 7 companies accounted for a staggering 42% of the weight. Some analysts pointed out that the recent sharp rise in technology stocks has made some people "feel uncomfortable", but no one wants to miss this opportunity.
This situation is also a common situation in the entire market, and some leading fund companies are not immune. Three Wall Street prime brokers that trade with hedge funds — JPMorgan Chase, Bank of America, and Morgan Stanley — were all among the top 10 Nvidia investors at the end of March. Wall Street views such brokerage holdings as a rough proxy for hedge fund positions
In addition to the funds that “didn’t get in the car” before, there are also large funds that have locked in profits ahead of Nvidia’s performance announcement on May 24, and are now rushing to cover their positions.
Akshay Narayanan, director of stock options trading at Optiver, a proprietary trading company, revealed that investors have been trading put options before Nvidia announced its results, which are derivatives that bet that stocks will fall. But after May 24, investors started trading more call options.
All in all, traders expect the recent market volatility to continue. Traders are expecting twice the normal level of volatility in shares around Nvidia's next quarterly earnings release date. It is worth noting that traders are now also betting that AMD's "data center and artificial intelligence technology premiere" event next week will trigger sharp volatility in the stock price. For more stock information, follow Caijing365!