This year, hedge funds and mutual funds have increased their equity market position sizes.
Long positions in Goldman Sachs’ Hedge Fund Very Important Position basket (GSTHHVIP), which includes the 50 most popular stocks within the top 10 holdings of fundamental hedge funds, have gained 34% year to date, according to a December 1 note from Goldman Sachs Chief US Equity Strategist David Kostin and his team.
The boost is primarily due to mega-cap technology stocks. However, following the hype is usually a bad strategy. According to the note, overcrowded positions risk steeper selloffs unless mutual funds love them as well. Since 2013, stocks favored by fund managers on both sides of the aisle have outperformed the S&P 500 in 60% of the months. While hedge funds continue to favor the magnificent seven, large-cap mutual funds do not.
One thing they both agree on right now is that high-quality stocks are the way to go. The third-quarter earnings season was critical in determining recent favorites; firms with high returns on capital, low volatility, and strong balance sheets were added to portfolios.
Goldman’s analysis looked at 735 hedge funds with a total of $2.4 trillion in long and short gross equity positions and 481 core, growth, and value mutual funds with a total of $2.8 trillion in assets under management to see which stock picks matched. The following are the ten stocks that made the cut as of the start of Q4.
