UBS's trading desk says the sharp selloff in momentum stocks may be nearing its end, creating an opportunity to rebuild positions in artificial intelligence and semiconductor shares. Hedge funds have already unwound about 5% of gross market value in momentum and semiconductor long positions, one of the largest reductions on record, leaving net positioning in semiconductor and software stocks back at April levels. Michael Romano, head of hedge fund equity derivative sales at UBS, advises gradually scaling into positions, calling the momentum de-risk a conviction call. UBS's momentum basket includes Sandisk Corp., Broadcom Inc., Oracle Corp., KKR & Co. Inc., Datadog Inc. and Microsoft Corp., and Romano expects the unwind to bottom by the end of July, if it hasn't already, noting a dramatic intraday reversal in UBS's momentum gauge on Friday. He also cautions that a recovery in AI and momentum shares could come at the expense of recent market leaders like banks and industrials, where much of the buying reflected short covering rather than new long positions.
Broadcom Inc
Microsoft Corporation
Datadog Inc
Oracle Corporation
KKR & Co. Inc.
Sandisk Corp