- Goldman Sachs says hedge funds are pivoting from cyclical value back to growth.
- Sectors that saw increased exposure included consumer discretionary and information technology.
- Meanwhile, energy, industrials, materials, and financials saw reduced exposure.
Last year was about relative success if you were trying to gauge the performance of an investment strategy. In other words, forget about your gains, as long as your losses weren’t as bad as the next guy.
It’s understandable, considering stocks had one of their worst years since 2008. The S&P 500 tumbled by 18%. Hedge funds did slightly better as they white-knuckled their way through, closing the year down by 4%, according to Goldman Sachs’ Hedge Fund Trend Monitor, which analyzes 758 funds.
But now, the tides seem to have turned. Year to date, the S&P 500 is up by 4.39%. The average hedge fund is trailing closely behind, up 3%, according to a February 21 note from Goldman Sachs.
Common wisdom did even better. If you combine the performance of the popular stocks among hedge funds, the returns beat both the index and the average fund. As of February 21, Goldman Sachs’ Hedge Fund VIP list (GSTHHVIP), which compiles the top long positions of fundamentally driven hedge funds, was up by 10% this year. It’s a steep reversal considering the list was down by 32% the prior year.
Overall, funds made a pivot from cyclical value back to growth. Sectors that saw increased exposure included consumer discretionary, communication services, and information technology. Meanwhile, energy, industrials, materials, and financials saw reduced exposure.
As the year progresses, Goldman expects stock pickers to outperform the broad market in what it believes to be the continuation of a micro-driven market, where performance is driven more by company-specific factors than by broader macro forces. In other words, it’s an excuse to set aside the age-old wisdom of playing it safe through index funds and put your skills to the test.
Or, you can just take a cue from some of these funds and follow the smart money.
Below is a list of 12 stocks that were most recently added to a larger list of 50 names from the VIP list that represent the positions that appear most frequently among the top 10 holdings of hedge funds.
Each slide includes the number of funds that own the stock, followed by how many of them have it as part of their top 10 holdings. The typical hedge fund holds 70% of its long portfolio in its top 10 positions, according to the note.