In a world in which hedge funds are increasingly struggling to come up alpha, not to mention original investment ideas, last week we showed what the top stock holdings of the 50 top hedge funds are.
Today, using Goldman data, we flip this data, and show the Top 50 stock holdings among the entire hedge fund universe. Not surprisingly, the usual suspects regain their top positions, led by the FAG stocks, namely the Facebook; Allergan, and Google, with Apple and Microsoft in 4th and 5th spot. Here is the result.
We have previously discussed why the ever greater pile up by hedge funds into a handful of stocks that “work” is also the reason why the HF community has seen such dramatic underperformance in recent months.
Another way to visualize just how full the “hedge fund hotel” is, comes courtesy of the following chart of HF portfolio “density”, confirming that the smart money has never been more reliant on a few key stocks.
This is what Goldman had to say about this:
Hedge fund portfolio density rose to record levels in March, exceeding even the Financial Crisis highs. Hedge fund returns continue to grow more dependent on the performance of a few key stocks. The typical hedge fund has 68% of its long-equity assets invested in its 10 largest positions. This statistic compares with 32% for the typical largecap mutual fund, 22% for the average small-cap mutual fund, 18% for the S&P 500 and just 3% for the Russell 2000 Index.
Finally, for those who wish to continue outperforming the “smart money” by investing in the stocks least held by hedge funds, a strategy we first suggested in February and one which has outperformed the market substantially since then, here is the list of the 20 least concentrated names.
The pair trade here is simple: stay long the least concentrated names, short the most popular stocks, and outperform 99% of your peers.
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