Morgan Stanley: Software stocks' fall hurts hedge fund net exposure, which fell to a multi-year low last week

After widespread selling in tech stocks, global hedge funds hit a "decade low" in their net exposure to US software stocks last week, according to a report from Morgan Stanley.

Morgan Stanley said: "Software was the most net sold sector, extending the net selling trend since the end of April and bringing the risk exposure to a decade low."

The rally in a handful of tech stocks has raised concerns among some investors that if sentiment changes, the market could see a sharp sell-off.

Morgan Stanley tracks fund flows through its large-cap index business. In aggregate, investment strategists were net sellers of stocks in the US, Europe and Asia (excluding Japan) last week, according to Morgan Stanley.

The S&P North American Technology Software index fell about 2 per cent last week, but is up 8.8 per cent so far this year. The index includes stocks such as Adobe (ADBE.US), Salesforce (CRM.US), Microsoft (MSFT.US) and Oracle (ORCL.US).

Hedge funds also sold cyclical stocks that move with the economic cycle, outside of tech, media and telecom.