The latest from Goldman Sachs hedge fund monitor notes a distinct reduction in exposure to growth and momentum stocks in the first quarter. The quarterly report that analyzes hedge fund positions also found that for the first time its list of “most important” stocks, or Hedge Fund VIP list, underperformed the S&P 500 (INDEXSP:.INX) by 100 bps. Media and Internet stocks were largely responsible for this underperfomance.
Google is now top holding of hedge funds, displacing General Motors
Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) came up as the most held company among hedge funds, however, that was not because of an increase in ownership but more due to reduction in competing top holdings. This list comprises the 50 companies that appear most frequently in hedge fund top 10 holdings. In 1Q 2014, the aggregate basket was up 1.4% whereas the S&P 500 returned +2.4%. According to the report, the most important list of hedge fund holdings churned out its worst monthly return in March/April, excluding crisis periods in 2002, 2008 and 2011.
At the end of the quarter, the top five most held stocks were Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), American International Group Inc (NYSE:AIG) and Time Warner Cable Inc (NYSE:TWC). The trend of selling in General Motors displaced it from No.1 position to No. 3 in the first quarter. As of the end of March, 8% of GM’s equity cap was owned by hedge funds compared to 14% at the end of 2013, and only 45 hedge funds held it in their top 10 portfolio compared to 75 earlier.
Google – Favorite tech stocks were shunned by hedge funds
While Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) managed to keep themselves in the top ten, Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB) were not so lucky. According to GS, only 21 hedge funds included Amazon in their top 10 holdings compared to 33 at end of last year. Other tech stocks that were dethroned to lesser ownership were Priceline Group Inc (NASDAQ:PCLN), Equinix Inc (NASDAQ:EQIX) and Yahoo! Inc. (NASDAQ:YHOO).
Verizon, Forest Labs, Cheniere Energy new entries in top 50 list
Two new entrants into Goldman Sachs’s VIP list were Verizon Communications Inc. (NYSE:VZ) and Walgreen Company (NYSE:WAG), a finding that coincides with Factset’s research for similar period.
Other than Verizon and Walgreen, seven other companies also entered the most important stocks list, including American Realty Capital Properties Inc (NASDAQ:ARCP), CF Industries Holdings, Inc. (NYSE:CF), Forest Laboratories, Inc. (NYSE:FRX), Halliburton Company (NYSE:HAL), Cheniere Energy, Inc. (NYSEAMEX:LNG), News Corp (NASDAQ:NWSA) and Sunedison Inc (NYSE:SUNE).
Cheniere Energy and Forest Laboratories, the new additions to the the VIP list, have sailed in to take 12th and 14th position in the top 50 holdings. Cheniere Energy’s most notable buyer was Seth Klarman’s Baupost Group, which took up a new position of 5.66 million shares, making it the fourth largest holding in its public long portfolio.
Hedge funds aggressively buy American Airlines Group in Q1
A closer look at Goldman Sachs’ report shows that a couple of stocks in the VIP list experienced a remarkable increase in hedge fund ownership. For example, hedge fund holdings in American Airlines Group Inc (NASDAQ:AAL) jumped from 11% of equity cap to 26% in the first quarter. AAL is now the sixth most held stock in Goldman Sachs’ list of most important positions, as 40 hedge funds claim it in their top ten portfolio, up from 20 at the end of 2013.
Based on our review of 13f filings, Dan Loeb initiated a new position in AAL with 2.7 million shares, whereas York Capital and Paulson Co. made major additions to existing positions. AAL is now York Capital’s largest holding as its position increased to 14.2 million shares. David Tepper’s Appaloosa Management, Odey Asset Management, Farallon Capital and Highland Capital also increased their holdings in the airline company.