Since the postwar period, the passive investment strategy has defined the trend for many. However, there are other alternatives such as trying to imitate the great giants, hedge funds, which know something else.
Along with the evolution of the global pandemic, Wall Street is moving its chips amid the inflation debate, the future actions of central banking and the cryptocurrency bubbles. Meanwhile, the so-called large speculative or hedge funds have already begun to reposition themselves. Undoubtedly, the movements of these giants of international finance not only mark, in a certain way, the trend of the present, but their repositioning provide clues about future bets. Hence the interesting thing to observe what they have been doing in terms of investments.
In this regard, one of the most recent and exhaustive monitoring is that of the investment bank Goldman Sachs, which dived into the portfolios of 807 hedge funds with investments that exceed US $ 2.7 trillion (almost 7 times the size of the Argentine economy ). But why pay attention to this information? In order to answer, it is enough to point out a fact that Goldman highlights: in the last 18 years the most popular or most bought stocks for a greater number of hedge funds have tended to outperform the rest of the sector, while the least bought shares or the most Detached companies have fallen out of favor and offered a lower return than their competitors.
As a first test, the analysis closed with the positions at the end of last March shows, for example, that Viacom and Discovery, two of the three most popular stocks, had to be sold even by the bank itself after the Archegos Capital Management debacle and its consequent margin call. While among the rest of the shares there are some well-known names, such as Twitter (the second that has attracted the most hedge funds to its cause recently), MGM Resorts and Morgan Stanley, and others not so much, such as the manufacturer of laser equipment, Coherent.
In turn, Fidelity National Information Service, Home Depot and Fiserv lead the list of most unpopular stocks among hedge funds in the first quarter of the year. Another fact to highlight is that without taking into account the actions that they incorporate or eliminate from their shopping list, Facebook dethroned the, until now undisputed king, Amazon as the company in which these Wall Street colossi are most invested. While the lead among the most popular long positions changed, the Top Five continues to top the VIP podium, now clear with a new order: Facebook, Microsoft, Amazon, Google and Alibaba. Of the surveyed hedge funds, 27% own Facebook shares and 57% of them own it as one of the top 10 positions. Of the 15 new VIPs, the majority are cyclical, including Citigroup, General Motors and Freeport McMoRan (copper).
What are some other notable findings? Here are the ones that caught Goldman’s attention the most. First of all, it cannot be ignored that the performance of hedge funds was not at all remarkable in this quarter since the basket of most popular long positions of these funds according to the “Goldman Hedge Fund Very Important Positions (HF VIP)” was behind the S&P 500 by 11 percentage points (-6% vs. + 5%) replicating its worst underperformance recorded in 2008/09. However, and something was seen weeks ago, according to the latest Prime Brokegrage, hedge funds registered the largest, sustained and aggressive sell-off in technology stocks in five years. According to Goldman, this reflects that hedge funds are switching to “Value” stocks. The latest positioning shows that these funds sharply moved away from “Growth” and went to “Value” in early 2021, reducing their bias to “Growth” below the 20-year average and matching the level of the third quarter of 2018, the most low in five years. The winners in this rotation were the large-cap stocks, the FAAMGs.
This repositioning or rotation was also reflected in the shedding of IT and Technology, Commercial Services and Consumer roles towards lower-valued cyclical sectors, including Energy and Materials. Goldman further warns that stocks heavily traded by retailers will remain volatile, especially after bitcoin swings. In this regard, several of the retail favorites appear among the stocks with the largest increases in popularity of these funds as well as among those with the largest decreases in popularity. Another piece of information is that hedge fund portfolio concentration has decreased dramatically since I-quarter 2020 and is now at its lowest level since 2015. The typical hedge fund holds 63% of its long portfolio in its 10 main positions,
In short, you can follow a passive strategy or watch what these Wall Street giants do.