New York: It’s been a tough few months for tech stocks from Facebook Inc. to memory chipmaker Micron Technology Inc., which have been at the forefront of the US stock market’s autumn rout.

If history is a guide, the blood-letting probably isn’t over.

Goldman Sachs identified Facebook and Micron among a list of companies that had the biggest declines in hedge fund ownership during the third quarter. Such “falling stars" have historically continued to trail the market over the next three to 12 months, strategists led by Ben Snider and David Kostin wrote in a note to clients Wednesday.

A violent unwinding of popular positions is one feature that has set the recent market rout apart from the one in February. As fears built over interest rates, global trade and corporate profits, hedge fund managers have cut back risk, taking profits on winners such as technology and pivoting to industries that offer stable income and dividends like healthcare. Down an average 4% this year, hedge funds have reduced their leverage, a measure of risk appetite, to the lowest level since the first half of 2017.

“Changes in popularity with hedge fund investors can be strong signals for future stock performance," the Goldman strategists wrote. “Hedge fund returns, portfolio leverage, and the performance of popular stocks have entered a vicious downward cycle."

After a red-hot start to the year, funds started bailing on some of the momentum trades. Former market darlings including Facebook and Marriott International Inc. saw a number of holders cashing out, while semiconductor stocks including Micron and NXP Semiconductors NV suffered similar fates.

Since 2002, a Goldman basket of hedge-fund “falling stars" has underperformed peers by 60 basis points over the next quarter. On the flip side, “rising star" stocks that saw the largest boost in hedge fund ownership have tended to outperform by a similar amount. That bodes particularly well for a number of defensive companies in the healthcare and consumer staples groups.

One basis point is one-hundredth of a percentage point.

Software company ServiceNow Inc. saw the largest bump in hedge fund ownership followed by CenterPoint Energy Inc. and Monster Beverage Corp. Among the health-care companies that saw increased fund ownership were Medtronic PLC, Express Scripts Holding Co, and Becton, Dickinson and Co. Defensive names like United Technologies Corp., Sysco Corp., and Southern Co. were also boosted.

For the first time since 2016, healthcare stocks were the most favoured among major industries, accounting for 18% of hedge funds’ net exposure. Meanwhile, money managers raised holdings in utilities above their market representation for the first time since the 2008 global financial crisis.

Tech shares were the most shunned, according to Goldman’s analysis of 823 hedge funds with $2.2 trillion in equity holdings that took into account both long and short positions.

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