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That meant reducing their net holdings of all Magnificent 7 stocks except for one, focusing on President Trump's policies, and moving into sectors “offering opportunities for stock-pickers,” according to a recent report from Goldman Sachs based on data collected from 13-F filings of 695 hedge funds as of Feb. 14, 2025.
Reducing exposure to the Magnificent 7
The Magnificent 7 stocks include Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). The term is often used to reference this group of mega-cap technology stocks that supercharged the U.S. stock market’s gains in recent years. From March 31, 2020, to December 31, 2024, the Bloomberg Magnificent 7 Index returned 532% vs. 125% for the broad-based Russell 3000 Index.
However, as the Goldman Sachs Research team put it recently, they’ve gone from "Magnificent 7" to "Maleficent 7." So far this year they’ve plunged almost 20%, while the S&P 500 is down around 8%, as uncertainty surrounding President Trump's policies rattle investors and fears that stocks are overvalued reach a 24-year high.
Hedge funds trimmed positions on net in all of them during the last quarter except for Tesla. Tesla was the one stock of the Magnificent 7 that funds added to in Q4 2024, making it onto Goldman Sachs’ “rising stars” list of stocks with the greatest increases in popularity among hedge funds.
Investors wanted to be part of its post-election surge as it regained its $1 trillion market capitalization on expectations that it would benefit from Elon Musk’s ties to the new administration and deregulation. But Tesla’s fortunes have since reversed and, as Musk’s focus on the Department of Government Efficiency (DOGE) continues, Tesla’s post-election surge has vanished.
It’s important to note that although hedge funds reduced their stakes in the Magnificent 7 stocks last quarter, all but Tesla still sat atop the Hedge Fund VIP list of the most popular long positions.
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Sector moves and stock picking
In Q4 2024, hedge funds increased their exposure to health care and communications services, “two sectors with high dispersion scores offering opportunities for stock-pickers.” This means there’s a wide range of returns for individual stocks, which is an ideal backdrop for stock pickers or investors who target specific companies instead of broad indexes.
A few health care stocks are among the ranking of the top 20 best-performing S&P 500 stocks so far this year. CVS Health (CVS) has risen over 50%.
Funds also looked to profit from policy changes resulting from the new administration, increasing their average ownership of stocks expected to benefit from deregulation, stocks exposed to small businesses and those with domestic sales. Capital One Financial (COF), which was awaiting approval for its $35 billion acquisition of Discover, entered the Hedge Fund VIP list of the most popular long positions. They also reduced their holdings of stocks exposed to Chinese supply chains, international sales and tariffs.
Funds moved into companies with AI-enabled revenues. These companies, which Goldman refers to as “Phase 3” companies, are those selling software and IT services that integrate generative AI into their offerings. They tend to trade similarly to “Phase 1” stocks such as Nvidia, reacting similarly to AI-related news.
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Vawn Himmelsbach is a veteran journalist who has been covering tech, business, finance and travel for the past three decades. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, Metro News, Canadian Geographic, Zoomer, CAA Magazine, Travelweek, Explore Magazine, Flare and Consumer Reports, to name a few.
