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Hedge funds double down on ‘Long Magnificent Seven’ trade

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The ‘Long Magnificent Seven’ trade, a strategy focused on mega-cap US technology companies, is the most crowded trade for the 15th consecutive month, according to report by MarketWatch citing Bank of America’s Global Fund Manager Survey. 

Bank of America surveyed 238 hedge funds collectively managing $721bn in assets, finding that 69% of fund managers now see LMS as the most crowded trade, a significant increase from 51% in May and more so than any similar trade since the 2020 dotcom rally. This was when ‘Long US Tech’ was repeatedly identified as the most crowded trade by fund managers, peaking at 80% in October 2020. 

In its June report, BofA stated that there had “only been a handful of times when a single trade was more crowded in Fund Manager Survey history”, beginning in 2011: the ‘Long U.S. Growth Stocks’ trade cited by 72% of money managers in June 2020, and the ‘Long US$’ trade, which reached 72% in February 2015. 

Year-to-date, shares of all the Magnificent Seven companies—Alphabet, Amazon, Apple, Meta, Microsoft and Nvidia—have seen significant gains, with Tesla being the exception. 

The survey also revealed that 64% of fund managers expect a ‘soft landing’ for the global economy over the next 12 months, up from 56% in May. Conversely, only 5% predicted a ‘hard landing’ scenario, down from 11%. 

Inflation remains the top cited risk, with 32% of investors naming it in June, down from 41% in May. Geopolitical concerns are now the second most cited risk (22%), up from 18%, while worries about the US elections have risen to third place (16%), up from 9%. 

When assessing the impact of the US elections in November, 38% of fund managers believe that trade policy will be the most affected area, followed by geopolitics (20%), immigration (13%), taxation (9%), government spending (7%) and energy (6%). 

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