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Hedge funds are steering clear of the booming artificial intelligence (AI) market and other technology stocks that have led the market rally over the past year. Instead, they are placing their bets on the healthcare sector, revealing a calculated move towards stability and value.
According to the Goldman Sachs Hedge Funds Monitor, hedge funds are heavily favoring the healthcare sector, allocating to it over 600 basis points beyond the benchmark’s weight.
In the S&P 500, the healthcare sector boasts a 12.8% weight, while tech nearly 30%. For the median hedge fund portfolio as of the end of Q4 2023, healthcare a weight of nearly 20%, while tech was underweighted by six percentage points to about 24%.
Much of this overweight is likely due to the relatively underwhelming performance of healthcare stocks compared to technology, as well as their relative affordability.
The Technology Select Sector SPDR Fund (NYSE:XLK) has surged by nearly 50% in the past year. In contrast, healthcare stocks, as tracked by the Health Care Select Sector SPDR Fund (NYSE:XLV), have only risen by 13.7% over the same period.
From a valuation perspective, while the technology sector trades at about 28 times its forward one-year earnings, health care is relatively cheaper at 19 times forward earnings.
Delving deeper, hedge funds have placed their bets on a handful of conviction healthcare stocks. As of December, prominent names in their portfolios, include:
| Name IT | Market Cap | Price Chg. % ↓ (YTD) |
| Eli Lilly and Company | $ 694.85B | 32.42% |
| Catalent, Inc. | $ 10.55B | 29.95% |
| Viatris Inc. | $ 15.99B | 23.08% |
| Da Vita Inc. | $ 11.10B | 20.87% |
| Merck & Co., Inc. | $ 326.83B | 18.30% |
| GE HealthCare Technologies Inc. | $ 10.55B | 18.04& |
| Striker Corp. | $ 41.56B | 18.04% |
| HCA Health care | $82.50B | 5.80% |
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