Goldman Sachs is out with their hedge fund monitor for Q1 2013. The 40 page report analyzes the top holdings of large hedge funds based on their recent 13F filings. Last quarter American International Group Inc (NYSE:AIG) was the favorite hedge fund holding according to Goldman. However, BAML’s research noted that Apple Inc (NASDAQ:AAPL) was the top holding, while Citi stated that Google Inc (NASDAQ:GOOG) was. All three firms had AIG in top five and had similar conclusions regarding other top five holdings. This quarter American International Group Inc (NYSE:AIG) maintained its crown as the top hedge fund holding, followed by Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), and Citigroup Inc (NYSE:C) according to Goldman. The list for the top four stocks has not changed from the prior quarter. Specifically, AIG is the top of the list among ’50 stocks that most frequently appear among the largest 10 holdings of hedge funds.’ Below are further details from the report followed by the full document in Scribd:
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AIG top hedge fund holding
This Hedge Fund Trend Monitor analyzes 705 hedge funds with $1.5 trillion of gross equity positions ($1.0 trillion long and $476 billion short). Our analysis of hedge fund positions at the start of 2Q 2013 is based on 13-F filings as of May 15, 2013.
Goldman Sachs list 8 conclusions below (emphasis ours):
1. PERFORMANCE: Hedge funds returned an average of 5% YTD through May 10, continuing a multi-year trend of lackluster relative performance. The 5% YTD return compares with 15% for both the S&P 500 and the average large-cap core mutual fund. Roughly 13% of funds posted negative returns while fewer than 5% of funds outperformed the S&P 500. While long positions have performed well, selection of shorts has hampered returns. 22 of 50 stocks with the highest short interest as a share of market cap returned more than 30% YTD, twice the S&P 500 return. See pages 4 and 33.
2. CONCENTRATION: Our basket of the 20 “Most Concentrated” hedge fund stocks (Bloomberg ticker: <GSTHHFHI>) has outperformed S&P 500 by over 1000 bp YTD in 2013. We define “concentration” as the share of equity cap owned by funds. Since 2001, the strategy has outperformed the S&P 500 69% of the time by an average of 267 bp per quarter. The market rally and rise in net long exposure alongside low position turnover is consistent with outperformance for the most concentrated stocks.
3. LEVERAGE: At the portfolio level, we estimate hedge funds in aggregate operate 53% net long, surpassing the record high of 52% last quarter. Risk appetite had matched previous highs from 1Q 2007 last quarter.
4. OPTIONS: At the stock level, our new analysis of hedge fund option positioning supports underlying holdings. This quarter we analyzed $133 billion of gross notional single stock options held by hedge funds composed of $68 billion of calls and $65 billion of puts. In general, the sector tilts and ETF positioning in the option holdings were similar to the underlying stock holdings. Funds held more calls than puts in sectors that funds are overweight versus the Russell 3000. ETF options favor puts, which imply use as a hedging tool.
5. TURNOVER: Turnover of all hedge fund positions rose to 30% from a record low of 28% during 4Q 2012, but remained well below the 10-year average of 35%. The top quartile of positions (largest holdings) turned over at an all time low of just 16% while the bottom-quartile of positions (smallest holdings) turned over 42%. See page 18.
6. SIZE: Small-cap stocks comprise 31% of the average hedge fund portfolio assets. The typical hedge fund allocates 49% of its assets to large-cap stocks (largest 500 in the Russell 1000) and 20% to mid-cap stocks (bottom half of the Russell 1000). On an aggregate asset basis, hedge funds allocate just 16% of their assets to small-caps and 63% to large caps. The difference between the average and the aggregate suggests that the hedge funds with the largest assets under management target large-cap stocks.
7. VERY IMPORTANT POSITIONS: Our Hedge Fund VIP list (Bloomberg: <GSTHHVIP>) contains the 50 stocks that appear most frequently among the top 10 holdings of fundamentally driven hedge fund portfolios. The basket returned 19% YTD, 170 bp better than the S&P 500. Top 10 stocks: AIG, GOOG, AAPL, C, GM, PCLN, VMED, NWSA, MSFT, and HTZ.
8. VERY IMPORTANT SHORT POSITIONS: Our Hedge Fund Very Important Short Position basket (Bloomberg: <GSTHVISP>) contains the 50 S&P 500 stocks with the highest total dollar value of short interest outstanding that are not in our VIP long basket. The VISP basket returned 18.4% YTD in 2013. Our VIP pair trade has mirrored the HFR Equity Hedge Index with an average quarterly return of 137 bp vs. 132 bp since 2001 but with a higher Sharpe Ratio (0.42 vs. 0.25). New top shorts include JNJ, CRM, WFC.
Goldman on AIG and other top holdings
From an implementation standpoint, the hedge fund VIP list offers an efficient vehicle for investors seeking to “follow the smart money” based on 13-F filings. The VIP basket has a large-cap bias with a median market capitalization of $31 billion compared with $15 billion for S&P 500. Top constituents include AIG, GOOG, AAPL, and C. These four stocks also topped the list, in the same order, last quarter making AIG the top holding for the second quarter in a row.
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