Hedge fund returns may have been on the positive end, but the average numbers are still below historical values. Goldman Sachs hedge fund trend monitor notes that an average hedge fund is returning 5.9 percent YTD whereas the S&P 500 (S&P Indices:.INX) was up by 14.5 percent at the end of Q3. As the chart below shows, hedge funds are trailing the S&P 500 (S&P Indices:.INX) by a whopping 860 basis points. GS VIP basket of stock picks includes a list of 50 names that surface most frequently in the top ten holdings of hedge funds. The VIP basket has returned 18.7 percent with most of the gains posted in the last quarter. Hedge funds increased their long exposure in response to the market rally that was observed in the last quarter. The monitor follows 696 hedge funds, with total funds of $1.3 trillion ($834 billion in long stock and ETFs vs $434 billion of short positions).

Long Exposure

The median market cap for the VIP basket is $48 billion. Stocks like Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), American International Group, Inc. (NYSE:AIG), and Microsoft Corporation (NASDAQ:MSFT) are the major players in the list. Out of the 696 funds followed by GS Hedge fund trend monitor, Apple Inc. (NASDAQ:AAPL) is the top ten long of 109 of them. The basket has the highest exposure in Consumer Discretionary at 24 percent and lowest in Consumer Staples at 4 percent. Other names in the top ten of the VIP Basket are, Priceline.com Inc (NASDAQ:PCLN), Qualcomm (NASDAQ: QCOM), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Express Scripts Holding Company (NASDAQ:ESRX), and Visa Inc (NYSE:V).

In Q3 2012, 13 new names entered the list including,  Barrick Gold Corporation (TSE:ABX) (NYSE:ABX), Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), Capital One Financial Corp (NYSE:COF), Cisco Systems, Inc. (NASDAQ:CSCO), DIRECTV (NASDAQ:DTV), General Electric Company (NYSE:GE), International Business Machines Corp. (NYSE:IBM), EMC Corporation (NYSE:EMC), Mondelez International Inc (NASDAQ:MDLZ), Philip Morris International Inc. (NYSE:PM),Marathon Petroleum Corp (NYSE:MPC), Occidental Petroleum Corporation (NYSE:OXY), and Exxon Mobil Corporation (NYSE:XOM).

Short Exposure

The Very Important Short Positions list of Goldman Sachs also has 50 holdings with a median market cap of $33 billion. The top five among the list are,  Intel Corporation (NASDAQ:INTC), Verizon Communications Inc. (NYSE:VZ), Gilead Sciences, Inc. (NASDAQ:GILD), Chevron Corporation (NYSE:CVX) and The Walt Disney Company (NYSE:DIS). More names from the VIP list are, AT&T Inc. (NYSE:T), Hewlett-Packard Company (NYSE:HPQ), ConocoPhillips (NYSE:COP), The Procter & Gamble Company (NYSE:PG), Merck & Co., Inc. (NYSE:MRK), and The Coca-Cola Company (NYSE:KO), among several others.

New entrants into the list include, Wal-Mart Stores, Inc. (NYSE:WMT), McDonald’s Corporation (NYSE:MCD), Oracle Corporation (NASDAQ:ORCL), 3M Co (NYSE:MMM), and O’Reilly Automotive Inc (NASDAQ:ORLY).

Concentrated Hedge Fund Owned Stocks

The stocks whose highest share of market cap is owned in aggregate by hedge funds have outperformed the S&P 500 by 686 bps, the returns from the list of the 20 most concentrated holdings have been near the historical average. The top five among the list are Tripadvisor Inc (NASDAQ:TRIP), AutoNation, Inc. (NYSE:AN), LyondellBasell Industries NV (NYSE:LYB), E TRADE Financial Corporation (NASDAQ:ETFC), and  J.C. Penney Company, Inc. (NYSE:JCP).

20 Most Concentrated Hedge Fund Holdings