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Facebook is hedge funds' new tech darling

Apple may have been the darling of Wall Street for some time while Facebook tagged along, but in the past few months, that pairing has been flipped on its head.

Hedge funds poured close to $3 billion in new and existing Facebook positions in the first quarter, making the social networking company the top purchase, according to S&P Global Market intelligence. The majority of that — $2.1 billion — came in the form of brand new Facebook positions.

Apple was a different story. In Q1, hedge funds sold more than $5 billion of the stock, with the vast majority — $4.8 billion — coming from positions being completely closed out.

In fact, Facebook was not simply the top tech buy but the top buy among all stocks, followed by Broadcom, Google parent Alphabet and Eli Lilly. Apple, on the other hand, topped the seller's list, followed by PepsiCo, Amazon and Priceline.

S&P analyzed the latest quarterly 13F filings to determine the largest hedge funds based on reported equity assets, isolating just the pure-play funds that focus on stock picks, the more activist and those with fewer than 100 positions.

The flow of funds from Apple to Facebook is also evident in their stock movements. In 2016, Facebook stock is up more than 12 percent, contrasted to Apple being down about 7 percent.

The numbers are even more staggering longer term. In the past 12 months, Facebook has gained 45 percent compared to a 26 percent decline for Apple. This compares to the Nasdaq and S&P 500, both barely moving — each down less than 5 percent.

Hedging opportunity?

Facebook shares hit all-time highs earlier this month, making it one of the best-performing stocks in the Nasdaq 100 this year. Apple, on the other hand, hit a 52-week low in May and is one of the worst performers in the index.

The two stocks that broadly moved in tandem until last year have also seen significant divergence recently. The rolling 60-day correlation between Apple and Facebook shares now stands negative and at its lowest levels since 2012 when Facebook had a rough start soon after going public.

While not a foolproof strategy, if the negative correlation persists, Facebook may actually work as a hedge against Apple for the foreseeable future.

Dumping $55 billion

A similar report by FactSet Insight that looked at a broader universe of hedge funds showed the equity exposure of the top 50 hedge funds declined by 6.9 percent in Q1. Investors dumped $55 billion worth of U.S. equities and $2.8 billion worth of Chinese equities during the quarter.

In Q4 2015, the top 50 hedge funds bought more stocks in tech than any other sector. They totaled $7.2 billion of tech shares, led by Apple, Broadcom and EMC. But in the very next quarter, these money flows completely reversed, FactSet said.