Morgan Stanley analyzes the 25Q2 13F position report: Institutional trends reveal new trends in US stocks, with technology leading in increased holdings while healthcare sees reduced holdings.

In the second quarter of 2025, there was a significant adjustment in institutional positions in the US stock market. The latest 13F analysis report from Morgan Stanley shows that investors continued to increase their positions in the technology, industrial, and communication services sectors, while reducing their holdings in the healthcare, financial, and consumer staples sectors. Hedge funds' position strategies were particularly noteworthy: they not only continued their underweight position in technology stocks but also showed a strong preference for small-cap healthcare stocks. Additionally, domestic US funds further solidified their dominant position in the S&P 500 index, with a share as high as 81%. Sector Allocation: Technology leads in increases, healthcare sees reductions In the second quarter, institutional investors made significant adjustments to sector allocation. The technology sector saw an increase of 1.9%, while the industrial and communication services sectors each increased by 0.6%, making them the three major winners. Meanwhile, the healthcare sector saw a decrease of 1.3%, and the financial and consumer staples sectors each decreased by 0.7%, collectively forming the major reduction areas. Looking at active weights (industry allocation percentage in the 13F report minus S&P 500 index industry weight), the changes in most sectors' positions were basically synchronized with index performance. This trend was consistent in both the overall market and hedge funds. Notably, there was a divergence in the consumer discretionary sector in large-cap stocks: hedge funds actively increased their positions by 0.6%, contrasting with the overall market's reduction by 0.3%, indicating a unique judgment by hedge funds in that sector. Small-cap Stock Trends: Technology and consumer discretionary become new favorites Position adjustments in the small-cap stock market were more aggressive. The technology sector saw an increase of 2.3%, and the consumer discretionary sector saw an increase of 0.9%, becoming the focus of investors' increased positions. Meanwhile, the consumer staples and healthcare sectors saw reductions of 0.9% and 0.8%, respectively, facing significant selling. Similar to large-cap stocks, the technology sector was also a core driver of increased positions in the small-cap stock market. Hedge funds' actions in the small-cap stock market were more varied, with active allocations in the small-cap financial and communication services sectors increasing in the second quarter, indicating thorough exploration of specific areas within small-cap stocks. Hedge Fund Positions: Long-term underweight in technology, overweight in small-cap healthcare Despite the recent strong performance of technology stocks, hedge funds have had a long-term underweight stance on the technology sector. Since 2017, influenced by the rapid expansion of giant tech stocks, both the overall market and hedge funds have maintained a low allocation to the technology sector. In contrast, hedge funds had a prominent allocation to the small-cap healthcare sector: they held a proportion as high as 28% of small-cap assets, while the sector's weight in the Russell 2000 index was only 10%. This overweight was mainly driven by small-cap biotech stocks, with funds coming from relatively low allocations to the financial and industrial sectors compared to the Russell 2000 index weight. Regional Positioning Pattern: US funds lead, industry distribution differs Regional distribution data shows that US domestic funds held 81% of the positions in the S&P 500 index, while European, Middle Eastern, and African funds held 16%, and Asia-Pacific funds held only 3%. From an industry perspective, the energy sector had the strongest North American attribute, with 86% of assets coming from North American funds; meanwhile, the real estate sector displayed the most international features, with 22% of funds coming from overseas. Significant differences in sector preferences across regions were observed: European, Middle Eastern, and African funds had a 2% higher allocation to the technology sector compared to the US; Asia-Pacific funds had the highest allocation proportion to US technology stocks, reaching 34%; while Latin American funds had the lowest, at only 26%. Latin American funds tended to allocate more to the materials, financial, and healthcare sectors, replacing their allocation to technology stocks. Stock Increases and Decreases: Tech giants in favor, some consumer stocks abandoned In the second quarter's stock position adjustments, tech giants stood out. NVIDIA (NVDA), Microsoft (MSFT), and Apple (AAPL) were the top three actively increased by hedge funds, with increases of 7.4%, 7.1%, and 5.8% respectively. Additionally, Amazon (AMZN), Meta (META), and other tech and internet giants also saw significant increases in positions. At the industry level, the most increased stocks were concentrated in sectors such as semiconductors and software services. Enphase Energy (ENPH) led with a 7.7% increase, followed closely by insurer Brown & Brown (BRO) and food company Campbell (CPB). In terms of reductions, credit scoring company FICO (FICO) saw a decrease of 6.2%, while luxury goods company Tapestry (TPR) saw a decrease of 4.9%, making them the most reduced stocks. Historical Positioning Trends: Structural changes in industry preferences Historical data shows that investors have been consistently overweight in the industrial and healthcare sectors, while having a long-term underweight position in the technology and consumer discretionary sectors. The underweight stance on the technology sector has intensified since 2010, mainly due to the high weighting of giant tech stocks in indices, with some investors constrained by the risk of single holdings or industry concentration. The underweight position in the consumer discretionary sector hit bottom in 2023 and has narrowed in recent years. The positioning characteristics of hedge funds are more distinct: although the proportion of overallocation to the consumer discretionary sector has been decreasing, it remains higher than the overall market; the underweight position in the technology sector is more pronounced than in the overall market, while the overallocation to the industrial and healthcare sectors is greater. Summary: Institutional strategies reflect market trends The changes in institutional positions in the second quarter show that while the technology sector saw widespread increases, hedge funds' long-term underweight stance remained unchanged, reflecting caution towards the valuation risks of giant tech stocks. The continued overallocation in small-cap healthcare stocks highlights institutions' optimism about the growth potential in the biotech sector. In terms of regional allocation, the dominant position of US funds and the differences in regional industry preferences provide guidance for cross-market strategies. For ordinary investors, focusing on structural opportunities within the technology sector, the growth logic of small-cap biotech stocks, and the cross-border investment opportunities brought about by regional allocation differences could be key. However, it should be noted that the 13F report only reflects positions as of June 30th, and subsequent market fluctuations may have led to position adjustments. Decisions should be made by considering the latest developments comprehensively. (Note: The data in this article is from Morgan Stanley's 2025 second-quarter 13F position report, based on research on the holdings of the top 100 funds and top 100 hedge funds, excluding derivatives and short positions.)