Goldman Sachs said its hedge fund VIP list consists of 50 stocks that matter most and appear most frequently to the top ten holdings in the hedge fund portfolios. Fundamentally-driven hedge funds have a large position in these stocks.
According to analysts at Goldman Sachs, the hedge fund VIP list outperformed that S&P 500 in 66% of quarters since 2001 by an average of 73bp with an information ratio of 0.28.
The hedge fund VIP list outperformed that S&P 500 by more than 700 bp in 2012 (23% vs. 16%) and 2013 (41% vs. 34%), but lagged the index by 9 bp year-to-date through May 15 (3.8% vs. 3.9%).
Hedge fund VIP list offers investment ideas
Goldman Sachs analyst Ben Snider and his colleagues said their hedge fund VIP list offers investment ideas. It also tracks the long equity positions of hedge funds.
According to them, “From an implementation standpoint, the hedge fund VIP list offers an efficient vehicle for investors seeking follow the smart money based on 13F filings. They explained that the list has a large-cap bias with a median market capitalization of $38 billion compared with $19 billion for S&P.
The top five stocks on the hedge fund VIP list are Actavis, Apple, Facebook, Valeant Pharmaceuticals International and Microsoft.
During the first quarter of 2015, Actavis was listed among the top ten positions of 77 hedge funds. Apple was one of the top ten holdings of 69 hedge funds. Facebook and Valeant Pharmaceuticals were among the top ten positions of 42 and 41 hedge funds respectively. Microsoft was one of the top ten holdings of 37 hedge funds.
Snider and his colleagues said the hedge fund VIP list is not sector-neutral to the S&P 500. The hedge fund VIP list consists of stocks from eight of the ten sectors. No stock was included from the telecommunications and utility sectors. The hedge fund VIP list overweights the consumer discretionary sectors (22%) and underweights the consumer staples (12%) compared with the broad market index.
Hedge fund performance
Snider and his fellow analysts emphasized, “hedge fund returns are highly dependent on the performance of a few key stocks.” According to them, a typical hedge fund’s 10 largest positions represent an average of 65% of its long equity assets compared with 32% for a typical large-cap mutual fund, 17% for the S&P 500 and only 3% for the Russell 2000 index.
During the first quarter of 2015, the hedge fund turnover of positions declined to a new low of 28%, but the portfolio density remained at 65%. The turnover increased in the financials and consumer discretionary sectors but declined in the energy and utilities sectors. The turnover of the largest quartile of hedge fund positions dropped to a new low of 14%.
According to the analysts, the hedge fund VIP list turnover was significantly below the historical average during the first quarter. Thirteen new stocks entered the list including AerCap Holdings, Assured Guaranty, Baker Hughes, Citizens Financial Group, Colony Capital, Dresser-Rand Group, Family Dollar Stores,Hospira, Netflix, Walgreens Boots Alliance, Visa, Pharmacyclics, and NXP Semiconductors.