So much for summer doldrums. Fund managers are buying stocks with both hands right now, piling into the market as the big stock averages test out all-time highs.
The buying we're seeing from funds isn't indiscriminate. They're piling into one sector in particular by a factor of more than three-to-one.
I'm talking about tech.
Far and away, the most-bought sector for pro investors last quarter was technology. Of course, that's not entirely surprising -- the tech sector has been a strong performer in 2017, the popular Technology Select Sector SPDR ETF (XLK) - Get Report handing investors almost 15% so far this year on a total returns basis. And that out-performance has been led by the big names in the sector.
Institutional buying data shows that professional investors are convinced that tech stocks are primed to keep on outperforming in 2017 -- and they're betting on three stocks in particular to lead the way.
To spot them, we're looking at the 13F filings, an SEC form that breaks down institutional stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than $100 million are required to submit a form 13F to the SEC each quarter.
Want to know which stocks are pro investors' favorites? Those 13F filings hold the key. Here's a look at the three tech stocks that fund managers love right now.
Up first on the list is tech behemoth Apple Inc. (AAPL) - Get Report. Apple is a clear-cut case of fund managers chasing performance - shares of this $747 billion stock have rallied more than 25% since the calendar flipped to January, accounting for a not-so-trivial chunk of the total S&P 500's performance.
(Apple is the highest-weighted constituent in the big index, after all.)
And that momentum isn't showing any signs of slowing here. Apple is a perfect example of an ecosystem effect surrounding a series of products. By controlling both hardware, software, and integrated services on its computers and mobile devices, Apple is able to eke out more performance per dollar spent on hardware. Likewise, it's able to impart a high switching cost for users considering switching to competing devices that won't play as nicely with other products those users may already own.
The next major catalyst for Apple is the expected September release of its next iPhone model. In the meantime, funds continue to pile into shares of Apple. Institutions added 85.2 million shares to their portfolios last quarter, a $12.2 billion buy operation at current price levels.
Fund managers are hitting the "like" button for social networking giant Facebook Inc. (FB) - Get Report right now. Funds added 29 million shares of Facebook to their portfolios in the most recent quarter, picking up another $4.38 billion in Facebook stock in the process.
Facebook is the most-visited website on the internet, with more than 1.6 billion monthly active users. That gigantic userbase translates into a large number of views that the firm can monetize through its advertising network. Because this social platform is built around knowing users' interests and friend networks, Facebook automatically owns a deeply valuable database of user stats that it can use to sell incredibly targeted ads at higher rates. New advances in the intersection between statistical learning and marketing are ratcheting up the value of Facebook's shares as monetization improves.
Currently, North America contributes around half of sales despite making up a much smaller proportion of overall web traffic - as other regions begin to see monetization rates approach those of the U.S. and Canada, Facebook has substantial green fields ahead of it.
Alibaba Group Holding Ltd.
While all of pro investors' biggest buys last quarter were large tech firms, they weren't all typical "FAANG" stocks. Case in point: Chinese e-commerce giant Alibaba Group Holding Ltd. (BABA) - Get Report.
Alibaba is the biggest e-commerce company in the world based on gross merchandise volume. The company owns the most popular online marketplaces in China, including namesake Alibaba, web marketplace Tmall, consumer-to-consumer sales site Taobao, and daily deals site Juhuasuan. Additionally, Alibaba also operates a payment network and a collection of cloud computing products.
The firm's massive scale and first-mover status in the Chinese e-commerce business gives it some substantial advantages. Today, approximately one third of China's population is made up of active buyers in the firm's marketplaces. Likewise, most of Alibaba's properties are considered a "market of first resort" by young Chinese consumers, a demographic whose buying power is becoming increasingly important in the years to come.
Alibaba has been a phenomenal performer year-to-date, up more than 61% since the calendar flipped to January - buyers are still very much in control of the price action this summer.
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This article is commentary by an independent contributor. At the time of publication, the author was long Apple.