Investing.com – Here’s a look at three things that were under the radar this past week.
1. Growth Stocks Back in Fashion?
The “smart money” has spoken. Bets on growth stocks are once again fashionable. But cyclical stocks are out.
Following the first-quarter cyclical rally, hedge funds cut their exposure toward energy, materials and industrials by 250 basis points and scooped up growth favorites like consumer discretionary and communication services, according to a report from Goldman Sachs, citing the latest quarterly fund filings.
The rotation saw consumer discretionaries become the largest net overweight tilt for the first time since 2015, Goldman said. Tech, meanwhile, still reigned supreme, accounting for 18% of hedge fund net exposure, the most of any sector.
Many will be quick to point out that hedge funds are becoming less relevant in the investment community, with returns that continue to undershoot the broader market and fail to justify the traditional 2-and-20 free structure (2% annual fee and 20% fee on profits above a certain level).
But the trillions of dollars they manage means their role in the broader market shouldn’t be underestimated.
The average equity hedge fund has returned 8% in 2019, supported by the outperformance of fund favorites such as FAANG stocks Facebook (NASDAQ:), Apple (NASDAQ:), Amazon (NASDAQ:), Netflix (NASDAQ:) and Google (NASDAQ:)), Goldman reported.
But that’s well shy of the , which has delivered more than 12.7% year to date.
Among the top names at hedge funds as of the end of the first quarter were the FAANGs, with Amazon, Facebook and Google parent Alphabet (NASDAQ:) representing three of the top five largest positions, according to Goldman.
The Technology Select Sector SPDR ETF (NYSE:) is up more than 20% year to date, though the deepening trade war between the U.S. and China has seen the index sliding more than 11% since May 6, when the Trump administration announced it will ratchet up tariffs on $200 billion worth of Chinese goods.
Yet Wall Street analysts are wary of declaring that FAANG’s ride higher is at risk.
“I don’t think FAANG is dead,” Kristina Hooper, Invesco’s chief global markets strategist, said on Yahoo Finance’s “The First Trade.” “But it makes sense that it’s taking a pause.”
“We have to recognize that there’s an economic policy uncertainty story here, which is the longer these trade wars go on, we’re likely to see (capital expenditure) go down.”
2. Faux Meat Could be a $140 Billion Market
Beyond Meat (NASDAQ:) shares ended the week lower, but it’s still one of the hottest IPOs in recent memory.
And the segment has huge potential, according to a research note Barclays Equity Research issued this week.
“We estimate that the market for alternative meat can reach (about) $140 billion over the next ten years, with alternative meat players capturing (about) 10% of the (approximately) $1.4 trillion global meat industry, based on our analysis,” Barclays said.
It did highlight risk factors “such as alternative meat products being less healthy than claimed as a result of high salt levels or potential regulatory requirements that restrict marketing” and the “inherent barriers” to replacing favorite foods like T-bone steaks.
But there are enough substitution opportunities for the alternative meat sector to grab its fair share of global market.
Barclays even managed to squeeze in a reference to Tesla (NASDAQ:).
“While we see some parallels to electric vehicle companies’ disruption of the car industry, we believe that the ultimate market opportunity for plant-based (and perhaps lab-based) protein is potentially even larger given the mainstream appeal of affordable food products relative to the current high-end, niche audience targeted by electric vehicle manufacturers,” it said.
“With that said, we believe taste and price will ultimately dictate whether or not alternative meat gains widespread acceptance,” Barclays added.
3. AI Will Spur Merger Boom and New Markets
As artificial intelligence progresses it will create a boom in corporate deals and also entirely new markets, according to one economist who’s been at the forefront of the tech sector.
In an interview highlighted by the Richmond Fed this week, economist R. Preston McAfee compared AI to innovations like electricity and the automobile, which fundamentally change the way things are done.
McAfee, who after his academic career joined Yahoo as chief economist in 2007, before moving on the Google and then Microsoft (NASDAQ:), told the Richmond Fed some tech companies will use AI to push into new businesses, while existing companies will fight back and also move into other areas.
“You’ll … get the creation of completely new markets,” he said. “Some of those markets are likely to be ones in which a single firm becomes dominant. Digital commerce was an example of this; there was a period when there were lots of companies in digital commerce, but Amazon has clearly stepped out as the leader.”
In addition, merger and acquisition booms, with the exception of the ‘80s one prompted by deregulation, are spurred by disruptive technologies, McAfee said.
“Such merger waves arise as firms struggle to change their business model, due to the changing environment the technological change brought about, and purchase new capabilities via merger,” he added. “I expect to see a large merger wave from AI, lasting a decade or more, that could change competition in many or even most sectors.”
Antitrust concerns should be lessened with Google, Microsoft, Amazon and IBM (NYSE:) all major vendors in AI, he added.