Quants' Footprint in Tech Hit Record as Selloff AcceleratedBy
Tech gross exposure climbs to 18 percent for programmed funds
Heightened reliance came amid worst week for sector since 2011
Among those making heavy bets on technology stocks during the sector’s worst week in nearly eight years were quant funds.
As of Wednesday, firms that use technology and formulas to automate the investment process had their highest gross exposure to the sector on record, according to Credit Suisse Group AG prime services data going back to 2013. At 18.4 percent, the measure of firms’ long and short positioning was nearly 2 percentage points higher than for February.
Quants on the Credit Suisse platform are roughly defined as funds that invest in thousands of equities and trade based on patterns, rather than making stock-specific bets.
It’s mounting evidence that investors following some of the most popular quantitative strategies -- such as momentum investing -- are heavily concentrated in technology. Over the past year, chipmakers Micron Technology Inc. and Nvidia Corp. alone accounted for more than a tenth of gains in the Bloomberg pure U.S. momentum index, which tracks stocks that have gained the most over the past year.
Yet if quant investors had stepped in Wednesday programmed to expect dip-buying, they found no such luck. Following the funds’ peak in technology exposure, the stocks fell about 5 percent to trade at the lowest in more than a month. For the week, global tech shares fell 7.3 percent.
On Monday, the stocks rallied back, with chipmakers among the biggest gainers in the S&P 500 Index.
As for fundamental managers, equity long-short hedge funds tracked by Credit Suisse maintained their elevated technology exposure, at about 22 percent of total holdings. Overall, equity managers appeared largely unmoved by last week’s bout of selling, according to Mark Connors, the head of risk advisory at the Swiss bank.
“Stable equity gross and net positioning across most equity managers indicates recent volatility has not prompted unwinds at this point,” Connors wrote in a Friday note. “The currently odd mix of hedge fund positioning reflects neither concern of further risk-off, nor longer-term optimism regarding global growth.”