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Analysts note that hedge fund returns have moved sideways in recent months, mirroring the performance of the stock market. The average equity hedge fund returned 3% year-to-date, Snider highlights.
“In contrast, our Hedge Fund VIP list of the most popular long positions has returned 14%, with popular longs outperforming concentrated shorts in nearly every sector. A record net tilt to the Health Care sector (-3% YTD) and widespread use of index hedges have detracted from returns,” they said in a client note.
The analysis also shows that hedge funds have little conviction in market direction. On the other hand, they have high confidence in their stock picks, especially in long portfolios.
“Funds continued their recent move away from regional and large banks during 1Q. Surging mega-cap tech stocks grew to 9% of the hedge fund long portfolio, close to a record high share. However, as market breadth narrowed, funds reduced positions in the Info Tech and Comm Services sectors, while adding to length in China Tech ADRs. BABA remains in the top 20 of our VIP list,” analysts added.
The analysis also showed that hedge funds have rotated toward defensives, namely Health Care, Consumer Staples, and Utilities. Overall, Health Care replaced Info Tech as the largest sector net exposure.
As far as individual stocks are concerned, mega caps are still at the top of Goldman’s list of popular hedge fund long positions.
“MSFT, AMZN, META, and GOOGL remain the top four stocks in the VIP list this quarter, with the Info Tech and Comm Services sectors accounting for nearly half of the list. The VIP list contains the 50 stocks that appear most often among the top 10 holdings of fundamental hedge funds. The basket has outperformed the S&P 500 in 58% of quarters since 2001 with an average quarterly excess return of 37 bp,” analysts concluded.
