Warren Buffett and Ray Dalio buy up tech stocks as Dan Loeb sells

By | May 27, 2022

Hedge funds such as Dan Loeb’s Third Point have been moving away from the tech giants amid the growth stocks selloff. However, some funds managers, like Ray Dalios Bridgewater Associates and Warren Buffetts Berkshire Hathaway, have decided to go against the grain and are pouring money into big tech.

Hedge fund managers have been backing out of their bets on big tech. The bruising selloff that has seen the S&P 500 slide for the seventh consecutive week has led to tech-heavy hedge funds nursing some major losses. According to HFR data seen by CNBC, they were some of the biggest losers in April, down an overall 5%. In comparison, macro funds saw a 5% gain.

One of the more notable casualties has been Tiger Global. Earlier this month, the firm disclosed in regulatory filings that the value of its public stock positions had been slashed by almost in the three months to the end of March from $46bn to $26bn.

Tiger Global decided to cut its losses and sold out of more than 80 positions, including liquidating stakes in Adobe [ADBE], Affirm [AFRM], Bumble [BMBL] and Dropbox [DROP]. It slashed its shares in Spotify [SPOT], Zoom [ZM], Peloton [PTON] and Robinhood [HOOD] by roughly 80%. Coinbase [COIN] and Roblox [RBLX] were others that saw reductions.

The fund fell 15.2% in April, according to the Financial Times. In a letter to investors seen by the publication, the firm’s management said the quarter was “very disappointing”. While “markets have not been co-operative given the macroeconomic backdrop”, Tiger Global didn’t offer any excuses for the poor performance.

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The difficulty of calling the bottom

Dan Loeb’s Third Point is another hedge fund that walked away from tech holdings in the first quarter. The fund exited its Alphabet [GOOGL] position and dumped roughly 90% of its Amazon [AMZN] stake and 70% of its Microsoft [MSFT] shares.

The bright spot in its recent quarterly report was that artificial intelligence software firm SentinelOne [S] was its top holding at the end of March, with a value of just over $1bn. However, the firm has been paring back its largest long position, selling around 1.5 million shares in April, lowering its stake from 26.3 million at the end of March to 24.8 million as of 26 May.

In his Q1 shareholder letter published 6 May, Loeb explained his decision to dial back tech investments: “Even after dramatic declines, it’s difficult to call a bottom in the high-growth, high-valuation end of the tech sector, especially given that many of these companies relied on stock-based compensation and controversial accounting and reporting techniques.”

Loeb added that some of these companies used compensation to attract talent but were having a challenging time retaining its employees. This could lead to dilution for future stock grants and push up cash wages, which “could weigh on margins for analysts who rely on adjusted measures rather than old-fashioned GAAP”, he argued.

Going against the grain

It’s not all doom and gloom, though. Ray Dalio’s Bridgwater Associates bumped up its Apple stake by 159.1% in the three months to the end of March, having reduced it by roughly 94% in Q4 2021. Regulatory filings show it also increased its position in eBay [EBAY] by over 1,200% but exited Tesla [TSLA].

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Appaloosa increased its stake in Uber [UBER] in Q1 by 797.8%. It added to just two other holdings: Amazon and Microsoft. David Tepper’s firm did, however, lower its Meta [FB] stake by 20%.

Meanwhile, Berkshire Hathaway [BRK-B] has been pouring money into Activision Blizzard [ATVI], acquiring a 9.5% stake. Warren Buffett is betting that antitrust regulators will approve Microsoft’s acquisition of the video games publisher.

Coatue Management added to several of its tech holdings in the first quarter, including Roblox [RBLX] and Snowflake [SNOW]. Two of the biggest changes were Pinterest [PINS] and Block [SQ], which saw increases of 112.4% and 117%, respectively.

What these moves show us is that there’s still life in tech stocks. But the longer the rate-hiking cycle drags on, the losses could get worse and hedge funds could exit more positions. The 13F filings for Q2, which will be published in August, should give investors a broader view of whether the worst is over or whether the selling has continued.

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