Hedge funds love mega-cap tech, and their FANMAG fandom isn't going anywhere. But some new ideas are on the rise for the world's biggest investors.
Delving into the holdings of leading funds, Goldman Sachs strategist Ben Snider writes that their top positions haven't changed much. In fact, the five most widely owned stocks have been the same for the last eight quarters, although their order has shifted at times.
Those leaders are Amazon, Microsoft, Facebook, Alibaba, and Alphabet. But elsewhere, hedge funds are adjusting their positioning to add more industrial stocks and banks, and trim their holdings in tech and healthcare. The picture that emerges starts to look a little more like a bet on a recovering economy.
"From an implementation standpoint, the Hedge Fund VIP list represents a tool for investors seeking to follow the smart money,'" Snider wrote in a note to clients. Goldman calls these widely-owned companies the "stocks that matter most."
He notes that Goldman's list of the 50 most popular hedge fund long positions has returned 18% so far, compared to about 6% for the S&P 500. And being a new favorite comes with its own perks.
"The Russell 3000 stocks with the largest increase in hedge fund popularity during 2Q have returned 22% in the last three months vs. 13% for the median stock," he wrote.
Whether or not those stocks join the tech giants as world-conquering portfolio staples, it's worth watching as signs of a Wall Street consensus start to develop around them.
For now, the biggest holdings of those funds are practically written in stone, as they haven't changed in a significant way in two years — practically an eternity on Wall Street. The 15 stocks that follow are the newest entrants in Snider's list of hedge fund favorites, meaning they broke into that list of 50 hedge fund favorites in the second quarter.
The stocks are ranked from lowest to highest based on how many fundamentally driven hedge funds disclosed each stock as one of their top 10 holdings. Snider and his team picked only from funds that have more than 10 and fewer than 200 positions, which leaves a group of stocks those funds have a high degree of confidence in.