As if it didn’t already, it’s beginning to feel like this trade war could go on forever. Maybe not forever, but there certainly doesn’t appear to be a resolution in sight.
And according to Goldman Sachs, the U.S.-China trade war is sending hedge funds running away from battered tech and semiconductor stocks and into health care names.
Goldman analyzed 835 hedge funds with $2.1 trillion in equity positions and, in looking at their latest regulatory filings, found that health care became the biggest sector exposure for hedge funds at 18% by the end of Q2.
“Funds took the policy-driven decline of Health Care stocks in 1H as an opportunity to lift the sector to the largest net overweight vs. the Russell 3000,” Goldman strategist Ben Snider wrote in a note. “Funds trimmed positions in semiconductors and other stocks exposed to US-China trade conflict.”
Health care stocks were battered earlier this year as political policy discussions around concepts such as Medicare for All as well as drug pricing gained momentum, hurting insurers, pharmaceuticals, and others in the sector.
Among hedge funds’ top new holdings are names such as Allergan (NYSE: AGN), Centene (NYSE: CNC), Humana (NYSE: HUM), WellCare Health Plans (NSYE: WCG), and Walgreens (NASDAQ: WBA), according to the firm.
Analysts are bullish on all five stocks and their average price targets indicate double digit upside for each, with AGN projected to gain 11.5% over the next twelve months, CNC 67.72%, HUM 18.62%, WCG 22.9%, and WBA with 26.59% upside ahead.
According to Snider, hedge funds are “largely ignoring the risk of health care regulation that garnered investor attention earlier this year. … Funds increased tilts toward Pharmaceuticals and Managed Care stocks, the industries most exposed to policy risk.”
The info tech sector is now the most underweight sector for the hedge funds Goldman looked at as they continue to cut those stocks with exposure to China, including chip stocks and U.S.-listed Chinese internet stocks.
One of the trade war’s biggest victims has been chip stocks ever since the U.S. blacklisted Chinese telecom giant, Huawei, which is a big buyer of U.S. chips.
“Elevated valuations and the escalating US-China trade conflict have driven hedge funds away from the Tech sector since 2017,” Snider wrote. “Funds have steadily reduced the share of market cap owned among the stocks most exposed to US-China trade conflict, such as semiconductors.”