Hedge funds reported their second quarter stock moves last week, and all the analysis on that 13F data is starting to come in. One thing noted by S&P Capital IQ was that activist investors drove hedge fund activity, particularly in Healthcare, during the quarter, but it looks like this might not necessarily have been such a good thing.
In fact, Evercore ISI analysts say their sector positioning “isn’t particularly good,” particularly when compared to that of institutional investors.
Hedge funds up discretionary exposure
Analyst Pankaj Patel and team at Evercore ISI noted hedge funds’ and institutional investors’ sector moves. They noted that hedge funds increased their exposure to the Consumer Discretionary sector to 8.7%. They also cut their underweight positioning in the Healthcare sector to -1.5%, according to the analysts. They found that these two overweighting moves were the biggest made by hedge funds during the second quarter.
Earlier this month, value investor Mohnish Pabrai took part in a Q&A session with William & Mary College students. Q3 2021 hedge fund letters, conferences and more Throughout the discussion, the hedge fund manager covered a range of topics, talking about his thoughts on valuation models, the key lessons every investor should know, and how Read More
Also of note was hedge funds’ reduction in their overweight positing on Technology companies by 3.4%. Their relative weight was 2.4% relative to the S&P 500 Index.
Hedge funds’ sector positioning’ not good
The firm called hedge funds sector positioning not “particularly good” because they were structurally underweight in Utilities and Consumer Staples. Those two sectors are the two top sectors so far this quarter in terms of returns.
They said the biggest thing hedge funds have going for them in sector positioning is the Consumer Discretionary sector because it is not only their biggest overweight sector but also the fourth best-returning sector so far this quarter. Here’s how hedge funds’ and institutional investors’ sector positioning compares (All graphs/ charts in this article are courtesy Evercore ISI.):
They found also that institutional investors have done better than hedge funds in terms of sectors because they are overweight in Financials and Consumer Staples, which both have done well so far this quarter. They’re also underweight on Energy, which is the worst-performing sector so far this quarter.
New adds for hedge funds, institutional investors
Netflix, Broadcom, Visa and Qualcomm were added to the hedge fund overweight portfolio, while Coca-Cola was new to the underweight portfolio.
For the top 15 overweight portfolio among institutional investors, Walt Disney, Zimmer Bionet and eBay were the new additions. For the underweight portfolio, the new additions were Philip Morris and Amgen.
Evercore ISI also reports that there were only three additions to the top ten holdings portfolio for concentrated funds. Celgene, Visa and Time Warner replaced Halliburton, Priceline and Microsoft. Also the top ten holdings among concentrated funds outperformed the S&P 500 by 210 basis points, which is a little shy of the average quarterly outperformance of 249 basis points.