MegaCap Tech Reaches Underowned Territory vs S&P 500, Implying Catch Up Trade Ahead - Morgan Stanley

May 25, 2022 8:21 AM EDT

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Morgan Stanley analyst, Erik Woodring, performed an ownership data analysis for the largest cap technology companies under coverage, learning that the top 100 actively managed institutional portfolios have lower weightings for mega cap names, relative to the same company’s weighting in the S&P 500. This implies, at some point, there is likely to be a catch up trade when the group is expected to outperform the S&P.

The analyst stated "there is a statistically significant relationship between low active ownership relative to the S&P 500 and future stock performance". "As of 1Q22, many large cap technology stocks remained under-owned relative to their weighting in the S&P 500, with MSFT, AAPL, AMZN, NVDA, GOOGL, CSCO and IBM the most under-owned of the stocks we track. However, within this group, only AAPL, NVDA, and CSCO saw their under-ownership gap widen in 1Q22, while many software and internet stocks saw this gap narrow in 1Q22. On average, the spread between active institutional ownership and S&P 500 weighting for the largest technology companies (by market cap) – AAPL, AMZN, FB, GOOGL and MSFT – was -80bps exiting 1Q22, while it was +22bps for the rest
of large-cap tech."

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