- Goldman Sachs’ equity analysts analyzed 814 hedge funds with $2.4 trillion of gross equity to gain better insight into hedge fund’s most important long and short positions.
- The analysts maintain both the 50 long positions and 50 short positions in baskets — the hedge fund VIP (“Very Important Positions”) basket and the hedge fund VISP (“Very Important Short Positions”) basket.
- “The Hedge Fund VIP basket has outperformed the S&P 500 by 20 pp YTD (+32% vs.+12%) and has outperformed the S&P 500 in 62% of quarters since 2001,” said Goldman Sachs’ equity analyst, Ben Snider, in a November 19 research report.
- Business Insider lists the 15 stocks that matter most to hedge funds, according to Goldman Sachs, as well as the 15 largest short positions amongst hedge funds.
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Hedge funds are notoriously secretive, famed for using a number of different strategies to achieve high returns for investors, including aggressive and derivative-based techniques.
Goldman Sachs has removed some of the secrecy. On November 19, Goldman Sachs’ equity analysts analyzed 814 hedge funds with $2.4 trillion of gross equity to gain better insight into hedge fund positions both long and short.
The analysis predominantly looks at 13F filings as of November 16 to understand hedge funds long positions and leverage publicly disclosed short interest statistics from exchanges to understand their short positions.
The equity analysts then break down the most important stocks for hedge funds, placing the top 50 stocks that are most important to hedge funds into a bucket known as VIP (“Very Important Positions).
Hedge funds have been under pressure in recent years due to underperformance and high fees. In 2019, hedge funds posted their strongest year since 2009 but still lagged behind the broader stock market, according to MarketWatch.
Despite this, Goldman Sachs basket of top hedge fund stocks still outperformed the S&P 500.
“Due in part to its concentration in Growth stocks, our Hedge Fund VIP basket of the most popular hedge fund long positions (ticker: GSTHHVIP) has outperformed the S&P 500 by 20 pp YTD (32% vs. 12%),” said Goldman Sachs’ equity analyst, Ben Snider. “This would represent the basket’s strongest annual excess return on record since 2001.”
However, the analysts do note that hedge funds have been increasingly relying on market beta to support returns and that funds have reduced portfolio concentration to the lowest level in five years.
“But recent vaccine announcements caused the sharpest reversal in our Momentum factor’s 40-year history, eroding hedge fund alpha as well,” Snider said.
Some market analysts, however, question how accurate the list is as it is based on 13F filings, which might not be reflective of current holdings.
“Importantly, we believe our analysis of hedge fund holdings based on 13F filings with 45-day delays is generally more reflective of actual current holdings than many market participants are inclined to believe,” Snider said.
Goldman Sachs also provides a complimentary top 50 short basket called the “Very Important Short Positions.” These are the S&P 500 stocks with the highest total dollar value of short interest outstanding. These are not based on 13Fs but publicly disclosed short interest statistics, meaning swaps and other derivatives are not included.
“The performance of a long GSTHHVIP/short GSTHVISP pair tracks hedge fund performance better than the long GSTHHVIP/short S&P 500 pair. The long/short VIP pair has generated an average quarterly return of 131 bp (5.2% annualized) since 2001, just 1 bp below the average return of the HFR Equity Hedge index but with a higher information ratio (0.36 vs. 0.28).”
Here’s Goldman Sachs top 15 most important stocks to hedge funds and the top 15 short positions for US holdings.