High-profile hedge funds dive back into beaten-down tech stocks to capitalize on the big comeback

Published Mon, Feb 20 20238:05 AM EST

Many high-profile hedge funds jumped back into technology stocks — the group that hurt their alpha the most last year — just in time to benefit from the furious comeback in the new year. Stephen Mandel's Lone Pine Capital significantly upped its holdings in Microsoft and Amazon , making them top bets at the end of the fourth quarter. Meanwhile, Philippe Laffont's Coatue Management significantly hiked its stakes in Alibaba , Microsoft and Advanced Micro Devices during the fourth quarter. Coatue also more than doubled its shares in Meta Platforms and Adobe . Baupost's Seth Klarman more than doubled his holdings in Google-parent Alphabet , making it his seventh biggest stake at the end of 2022. Klarman also drastically increased his Meta and Amazon bets last quarter. Money managers with assets under management over $100 million are required to disclose their long positions quarterly with the Securities and Exchange Commission. The latest filings showed their bets at the end of 2022. These big investors loaded up on stocks that were among last year's biggest losers amid the Federal Reserve's aggressive rate hikes. The tech-heavy Nasdaq Composite tumbled 33.1% in 2022, suffering its worst year since 2008. Hedge funds overall saw significant negative long alpha (-12.1%) last year, with the single biggest contributor being exposure to info tech, according to Goldman Sachs. .IXIC 1Y mountain Nasdaq Composite The rebound in technology stocks came fast and furious in the new year. The Nasdaq is up more than 12% year to date after notching its best monthly performance since July in January. Meta has added 43% in 2023, while Amazon has gained 15%. AMD is up 21% this year. The strength in the sector came despite announcements of thousands of job cuts as the companies prepare for an economic slowdown and even a recession. Many investors, however, took the wave of bad news as a positive catalyst for the stocks as layoffs could help improve company margins. Hedge funds overall were able to beat the market significantly. Goldman estimated that the group on average registered a loss of just 1%. The outperformance was driven by the significant positive short alpha (+6.9%), which marked the best year on Goldman's record. Greenlight Capital's David Einhorn posted one of his best years ever with an outstanding return north of 30%, thanks in part to his short position in a slew of innovative technology stocks like those touted by growth investor Cathie Wood.