Hedge Fund Net Exposure Dips As AIG Remains Favorite: Goldman

Hedge Fund Net Exposure Dips As AIG Remains Favorite: Goldman

The latest hedge fund monitor from Goldman Sachs is out this morning. In the report, Goldman analysts, Amanda Sneider, CFA, Ben Snider, David J. Kostin, Stuart Kaiser, CFA, and Rima Reddy look at tons of data on hedge funds, including the top holdings of funds based on 13F filings from Q2. It appears that American International Group Inc (NYSE:AIG) is still the king of the hedge fund castle and that net exposure has dipped despite new market highs. To see the latest data for individual hedge funds check out our article from Tuesday.

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Below is a brief excerpt from Goldman’s hedge fund monitor

hedge fund

This Hedge Fund Trend Monitor analyzes 708 hedge funds with $1.5 trillion of gross equity positions ($1.0 trillion long and $509 billion short). Our analysis of hedge fund positions at the start of 3Q 2013 is based on 13-F filings as of August 15, 2013. We list seven conclusions below.

Voss Value Sees Plenty Of Opportunities In Cheap Small Caps [Exclusive]

investFor the first quarter of 2022, the Voss Value Fund returned -5.5% net of fees and expenses compared to a -7.5% total return for the Russell 2000 and a -4.6% total return for the S&P 500. According to a copy of the firm’s first-quarter letter to investors, a copy of which ValueWalk has been able Read More

1. PERFORMANCE: Hedge funds returned an average of 4% YTD through August 9, with 25% of funds posting absolute losses. The 4% YTD return compares with 20% for both S&P 500 and the average large-cap core mutual fund. Fewer than 5% of hedge funds outperformed the S&P 500. While popular long positions have outperformed the broad, selection of shorts has hampered returns. The 50 stocks with the highest short interest as a share of market cap returned an average of 30% YTD.

2. CONCENTRATION: Our basket of the 20 “Most Concentrated” hedge fund stocks (Bloomberg ticker: <GSTHHFHI>) has outperformed S&P 500 by nearly 1200 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 263 bp per quarter. The market rally and rise in net long exposure YTD 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 51% net long, a slight decline from the record high of 53% last quarter. Risk appetite remained roughly flat despite the S&P 500 rising to new all-time highs.

4. TURNOVER: Turnover of all hedge fund positions remained near record lows, at 30%, as fund portfolios remain focused. The turnover of top quartile of positions (largest holdings) remained at an all time low of 17%. The average fund holds 63% of long assets in its top 10 positions compared with 38% for the average mutual fund.

5. ETFS: Hedge funds hold large net short positions in EM equities, volatility, gold, and high-yield bond ETFs. Hedge funds generally use ETFs more as a hedging tool than directional investment vehicles, but these positions reflect large changes versus the prior quarter. ETFs represent 3% of long holdings, the lowest since 1Q 2010.


6. 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 20% YTD, 50 bp better than the S&P 500. See page 5. Top 10 stocks: AIG, GOOG, AAPL, GM, C, MSFT, CHTR, PCLN, HTZ, and FOXA. Page 7 has the full list including 15 new constituents. The average “VIP” constituent trades at a premium multiple to the S&P 500, but higher short-term and long-term growth expectations may explain the difference in valuation. The VIP List is expected to grow 2014 sales and earnings faster than the S&P 500, and long-term growth expectations are also higher. Consensus price targets imply 15% upside versus 11% for the S&P 500. The expected return is higher than the betaadjusted index target implying alpha opportunity.

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