If you own a tech-heavy ETF, you might want to sit down for this. Hedge funds just pulled the ripcord on U.S. technology stocks in a way we haven't seen in nearly a decade.
According to data from Goldman Sachs Prime Services, shared by The Kobeissi Letter on X, hedge funds recorded their biggest weekly net selling of U.S. information technology equities in the week ended June 25. We're talking bigger than August 2024, when the Nasdaq-100 tumbled more than 10% into correction territory. That's not a small comparison.
For ETF investors, this isn't just a hedge fund problem. The stocks getting dumped are the same ones that sit at the top of many of the most popular tech ETFs. When institutions sell, the ripple effects can hit passive funds too—not because ETFs themselves sell, but because the underlying stocks they hold can get whacked.
Technology ETFs Sit At The Center Of The Rotation
The institutional pullback puts several of the market's largest technology ETFs in the spotlight.
The Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100, gets a huge chunk of its performance from mega-cap tech names. And with its MACD reading around 3, there's some near-term selling momentum brewing. That's not a screaming sell signal, but it's worth watching.
Then there's the Technology Select Sector SPDR Fund (XLK) and the Vanguard Information Technology ETF (VGT). Both are heavily concentrated in Nvidia Corp (NVDA), Microsoft Corp (MSFT), Apple Inc (AAPL), and Broadcom Inc (AVGO). When hedge funds decide they've had enough of those names, these ETFs feel the heat.
If you want even more concentrated exposure, keep an eye on the Roundhill Magnificent Seven ETF (MAGS). It equally weights Apple, Microsoft, Nvidia, Amazon.com Inc (AMZN), Alphabet Inc (GOOGL), Meta Platforms Inc (META), and Tesla Inc (TSLA)—all the stocks at the center of this hedge fund repositioning.
Again, ETFs don't trigger selling. But sustained institutional liquidation of their underlying holdings can lead to higher volatility and weaker performance for these funds. It's physics: if the big money is pulling out of the stocks that make up your ETF, your ETF is going to feel it.
Hedge Funds Trim Magnificent Seven Exposure
This isn't just a one-week blip. The data suggests a deeper shift in how professional investors are thinking about tech.
Goldman Sachs reports that the Magnificent Seven now account for just 14.5% of total U.S. hedge fund exposure—near the lowest level in three years. That exposure has dropped by seven percentage points since the start of 2026, marking the steepest six-month reduction since the 2022 bear market.
Translation: hedge funds are getting nervous about the concentration and valuations that have defined the AI-driven rally. Even with the broader market near record highs, they're trimming their bets on the biggest names.
That doesn't mean they're bearish on stocks overall. It could just be a rotation—moving money into areas with better valuations or broader earnings participation. But for tech-focused ETFs, it's a headwind.
Could ETF Investors Rotate Too?
The big question is whether retail ETF investors will follow the hedge funds out the door.
If the rotation continues, we could see more money flowing into diversified alternatives like the Invesco S&P 500 Equal Weight ETF (RSP), which spreads its bets more evenly and doesn't lean so heavily on mega-cap tech. Sector funds like the Financial Select Sector SPDR Fund (XLF) and the Industrial Select Sector SPDR Fund (XLI) could also benefit if investors start looking for value outside of tech.
But here's the thing: passive investors have been remarkably resilient. If they keep pouring money into QQQ, XLK, and VGT despite hedge funds heading the other way, that could cushion the blow. But if ETF investors start rotating away from mega-cap tech too, the pressure on the sector could get a lot more intense.
For now, it's a waiting game. The hedge funds have made their move. The question is whether the rest of the market follows.
