For the eighth time in the past nine quarters, Amazon.com was the most popular hedge fund holding.
Courtesy of Amazon
The most-owned stocks by hedge funds are handily topping the market’s performance this year, returning 32% from the start of 2020 through the end of last week. That compares with a roughly 12% gain for the S&P 500 in that period. That 20-point outperformance is the best showing by hedge funds since 2001, according to an analysis by Goldman Sachs.
Within 45 days of the end of each quarter, hedge funds must report their holdings to the Securities and Exchange Commission on a regulatory form known as a 13F. In a recent study, a team of Goldman Sachs analysts compiled the holdings of 814 hedge funds that managed about $2.4 trillion as the fourth quarter began.
Their “Hedge Fund VIP” basket includes the stocks that are most frequently found in hedge funds’ top-10 holdings. That list is headed by some familiar names. For the eighth time in the past nine quarters, Amazon.com (ticker: AMZN) was the most popular holding: 113 hedge funds in Goldman’s survey have it in their top 10, and an additional 179 have it in their top 200. That has been a good bet in 2020, as Amazon stock has soared almost 70% since the start of the year.
Next on the VIP list are Facebook (FB), Microsoft (MSFT), Alibaba Group Holding (BABA), and Alphabet (GOOGL). They are also strong outperformers this year—laggard Alibaba is up 31% year to date.
Hedge Fund VIPs
Source: Goldman Sachs
(If you cannot view the table above, please click here.)
Overall, hedge funds are less concentrated in technology names than the Russell 3000 index of most U.S. stocks. That group makes up about 27% of the index, but close to 19% of hedge-fund portfolios. Health-care stocks are hedge funds’ most-concentrated holdings, at 21%, and their greatest overweight versus the Russell 3000, which has a 14% weight in health care.
Hedge funds were also overweight consumer discretionary and communication services versus the Russell 3000—although by less than the previous quarter—and underweight consumer staples and financials—also by less than three months earlier. That suggests fund managers were moving toward areas of the market that benefit from a cyclical recovery in the U.S. and global economies. Cheaper relative valuations can also be found in financials and energy, which also saw their weight increase last quarter.
The top new buys in the third quarter—judged by the increase in the number of hedge funds that owned the stock—were led by Varian Medical Systems (VAR), United Parcel Service (UPS), Pinterest (PINS), Microsoft, and J.B. Hunt Transport Services (JBHT). The Goldman Sachs analysts call this group the “Rising Stars.” Since 2002, the stocks in that basket have gone on to outperform other stocks in their sector by an average of 0.52 percentage point in the following quarter.
The reverse also holds true: Stocks with the largest decline in the number of hedge-fund owners in a quarter have underperformed their sector peers by 0.60 percentage point over the next quarter. In the third quarter, the list of “Falling Stars” is topped by PG&E (PCG), PNC Financial Services Group (PNC), Consolidated Edison (ED), Avery Dennison (AVY), and Motorola Solutions (MSI).
Here are the top new adds and the most-exited positions by hedge funds in the third quarter:
Hedge Fund Rising Stars
Source: Goldman Sachs
(If you cannot view the table above, please click here.)
Hedge Fund Falling Stars
Source: Goldman Sachs
(If you cannot view the table above, please click here.)
Write to Nicholas Jasinski at [email protected]
