Google Inc (NASDAQ:GOOG) is the favorite stock among hedge funds according to a report by Citigroup analyst Tobias M Levkovich. Goldman Sachs stated that (American International Group Inc (NYSE:AIG) was the top hedge fund holding only several weeks ago. Citi and Goldman likely use different methodologies for their calculations, and both firms have similar findings. Citigroup also ranks Google as the top mutual fund holding.
In terms of individual stocks, Google Inc (NASDAQ:GOOG) surpassed Apple (NASDAQ:AAPL) to be the most widely held stock amongst the largest 50 mutual funds in 4Q12. In spite of a lackluster 4Q performance, Google gained four holdings, while Apple lost three and declined the most of any other top holding.
In similar fashion, Google Inc (NASDAQ:GOOG) took 1st place amongst hedge fund holdings, followed by News Corp (NASDAQ:NWSA) (NASDAQ:NWS) ; 1). The biggest mover amongst hedge funds in 4Q was Netflix, Inc. (NASDAQ:NFLX), which appeared on the list for the first time in several quarters and surged 70.1%. Overall, the portfolio of top holdings for mutual funds declined markedly (-22.1%) in the last quarter of 2012 and underperformed the S&P 500 by over 2,000 bps due to an overweight posture for IT names.
Other key findings from the report below
While IT continued to dominate, the latest top-ten report revealed a preference for Consumer Discretionary stocks. IT names represented one-third of the most broadly held positions for mutual funds, followed by Health Care, Financial and Consumer Discretionary names. Interestingly, hedge funds meaningfully stepped up their preference for Consumer Discretionary stocks, with eight stocks within the 30 most widely held positions. Limited exposure in the Industrials and Telecoms space was evident, while Utilities and Materials remained out of favor at both mutual and hedge funds.
In this latest installment of the quarterly top-ten review, the willingness of funds to take on risk was analyzed by Citi measuring the beta of their investment portfolios. The average one-year beta of top holdings amongst mutual funds bottomed in 4Q08 as long-only funds held a defensive posture amidst a 23.6% decline in the S&P 500 in 2008, but then peaked in 1Q11 in a more "risk-on" environment.
Not surprisingly, the recent market volatility contributed to a shift in portfolio weighting and a willingness to add beta. The current beta of top mutual fund holdings is 0.97, in-line with its 30-quarter average of 0.98; this compares to a beta of 1.18 for hedge funds, the highest measure since 2Q10 and well above the more recent average of 1.08.
Holding styles amongst funds in 4Q12 were evenly split
Of the 50 mutual funds studied, 29 were designated as growth funds and 10 tagged as value funds. Compared to mutual funds, of the 50 hedge funds polled, 34 were considered growth oriented while 15 were indicated as value funds. Apple, Google, Amazon and Coca-Cola (KO)were among the top holdings at growth oriented mutual and hedge funds, while Microsoft Corporation (NASDAQ:MSFT), Pfizer (NYSE:PFE), Hewlett-Packard Company (NYSE:HPQ) and Oracle appeared on both value oriented fund lists.
Hedge Funds Lag S&P 500
S&P 500 (S&P Indices:.INX) and hedge fund performance continue to diverge. In contrast to 3Q12, the hedge fund index outperformed the S&P 500 (S&P Indices:.INX) by 240 bps in 4Q, but that lead has reversed since January 2013, suggesting many hedge funds were more aggressively positioned this quarter. For the full year 2012, the market rose 13.4% versus a 4.8% gain for the HFR Equity Index, marking yet another year of uninspiring performance for many hedge funds.
Compared to mutual fund top holdings, the portfolio for hedge funds rose 3.9% and outperformed the S&P 500 by 490 bps in 4Q, likely due to a stronger preference for consumer discretionary stocks.