Additional content provided by Brian Booe, Associate Analyst, Research.

The U.S. equity market hummed along in the final quarter of 2024, although not without headwinds at the macro level from shifting Federal Reserve (Fed) rate cut bets, dampened disinflation traction, and policy proposals from the now-sitting U.S. administration. Amid a flurry of headlines from Wall Street to Washington, many market watchers have asked, as they do every quarter, “How was this environment navigated?” Well, investors can turn to 13F filings for answers.  

A “13F filing” refers to the form submitted each quarter to the Securities and Exchange Commission (SEC) by institutional investment managers who oversee at least $100 million in assets under management (AUM). The report details each manager’s equity positions and was created to help provide transparency into the investment strategies of large funds. The reports are also commonly used to provide insights into what hedge funds, pension funds, endowments, and private equity firms, for example, are doing in the market. Additional types of funds that are required to file the 13F form include venture capital firms, banks, corporations, insurance companies, and brokerage firms.    

Institutional Investors Return to Tech 

At the sector level, institutional managers returned to technology stocks following a brief hiatus and likely some profit taking from the sector during the third quarter, in which technology allocations declined over 1%. Last quarter, technology holdings increased 0.7% and were closely followed by a 0.6% quarter-over-quarter increase in financials, which likely garnered support from the results of the U.S. presidential election and hopes for deregulation, as well as hopes for increased lending activity in the wake of Fed rate cuts. Communication services and consumer discretionary allocations both increased 0.5% from the third quarter, while allocations toward exchange-traded funds (ETFs) rose 0.4%. On the other side of the coin, investors pulled out of healthcare names after remaining unchanged in the prior quarter, with allocations to the sector declining 1.4%. Healthcare stocks fell over 10% across the S&P 500 last quarter, ending the year less than 3% in positive territory, including dividends. The rotation out of healthcare to end the year was likely driven by political dynamics, including the nomination of the so-called anti-vaccine Health Secretary, Robert F. Kennedy, Jr. and the potential for reduced Affordable Care Act subsidies. 

Sector Changes During the Fourth Quarter

Source: LPL Research, Bloomberg 02/19/25
Disclosures: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.

Hedge Funds Broadly Snapped Up Big Tech Names 

Hedge funds are always a point of interest in 13F filings. Broadly, holdings data for hedge fund managers followed the same trends as all institutional managers — moving back into tech stocks and reducing exposure to healthcare. On the individual security level, Magnificent Seven members Amazon (AMZN), NVIDIA (NVDA), and Tesla (TSLA) were the top three stocks based on the change in market value, as a result of net buying and price appreciation. On a share count basis, hedge funds broadly increased their positions in all seven index heavyweights, with the exception of Microsoft (MSFT), which faced net selling of 2.1 million shares. Meanwhile, managers slashed holdings in Palantir Technologies (PLTR) and Temu parent company and Chinese e-commerce giant PDD Holdings (PDD), reducing allocations by 28.8 million shares and 18.8 million shares, respectively.  

Although hedge fund trends broadly matched that of overall institutional actions, trades at each shop varied widely, as one might expect. Legendary investor Warren Buffett’s firm, Berkshire Hathaway (BRK), rotated back into technology names on a sector basis, while shifting away from consumer staples companies. Some of Berkshire’s biggest moves included increasing its allocation in Sirius XM (SIRI) and initiating a position in alcoholic beverage company Constellation Brands (STZ), while cutting its position in Bank of America (BAC). In contrast, Scion Asset Management, under Big Short-famous CEO Dr. Michael Burry snapped up healthcare and consumer staples names and sold out of its holdings in financials and consumer discretionary companies.    

Conclusion  

In addition to individual stocks, 13F filings can also provide insights into broader market sentiment via increases or decreases in ETF holdings. Among the top 10 funds institutional managers piled into (based on the increase in shares), four spots were claimed by products tracking the U.S. bond market. Bond ETF purchases totaled 562.8 million shares among the top 10 funds, while longer-duration funds took the bottom two spots with the largest number of shares sold. Large cap growth remained dominant with a total increase of 1.6 billion shares among the top 10 funds. 

The LPL Research Strategic and Tactical Asset Allocation Committee (STAAC) remains tactically neutral towards equities, with a preference for large cap growth stocks over large value, and domestically domiciled companies over those in emerging and developed international markets. The Committee maintains its neutral stance towards fixed income and recommends an up-in-quality approach in allocating to fixed income sectors. Additionally, the STAAC is neutral towards duration as interest rate volatility will likely remain elevated, and adding duration isn’t attractive at current levels.