LIVE MARKETS-Institutional investors boost tech bets in Q2, but allocation still remains weak - Morgan Stanley

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INSTITUTIONAL INVESTORS BOOST TECH BETS IN Q2, BUT ALLOCATION STILL REMAINS WEAK - MORGAN STANLEY

Data crunched by Morgan Stanley strategists show top funds increased their exposure to technology by the most of any sector in the quarter ended June 30, though allocations for the sector still remain in the 'underweight' category.

Institutional investors increased their exposure to the large-cap technology sector by 1.9% quarter-over-quarter in terms of active exposure, the most among the major sub-sectors, Morgan Stanley equity strategists led by Nicholas Lentini said in a note.

Similar to large caps, technology led the way for exposure increases in small caps, seeing a 2.3% increase. Within hedge funds, small-cap financials and communication services also saw an increase in active share.

The brokerage says while sector allocations are generally aligned with benchmark weights, tech remains an exception with it remaining a persistent 'underweight' for both the full population and hedge funds since 2017.

Morgan Stanley says the weakness is likely driven by the high index weighting of megacap stocks, where some investors face risk and size constraints for single positions or sector concentration.

The "Magnificent 7" stocks, which include tech giants Apple AAPL.O and Nvidia NVDA.O, hold a combined weight of nearly 34% on the S&P 500 .SPX.

Morgan Stanley's calculations are based on the filing period ending August 14 and the majority of filers being long-only funds, with only 4% of assets represented by hedge funds.

Their analysis is focused on the top 100 funds and hedge funds in terms of assets under management.

On the flipside, healthcare, financials and consumer staples saw a reduction in exposure on the large-cap side, something that Morgan Stanley said was in line with S&P 500 sector movements during the period.

(Shashwat Chauhan)

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