Last week, I discussed the dismal returns that hedge funds have been giving their investors since they last beat the S&P 500 Index back in 2008. And I noted that the returns have suffered primarily because of high management fees and lots of turnover.
I want to share with you another reason why hedge fund returns may be lagging: Those munificently paid hedge fund managers are picking the wrong stocks!
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You can see that the market, while still volatile, has been on the rise for the past six months. Yet hedge fund returns aren’t matching that performance. That may be because hedge funds’ most popular holdings are stocks that, on a technical basis, don’t look attractive at all.
Goldman Sachs (NYSE:GS) just revealed the top 50 holdings of hedge funds. I decided to put each one through my technical-analysis screen — and I have to say that even I was amazed at the results!
Of those top 50 stocks, only 13 were rated a Buy or a Strong Buy by my indicators. Six were Holds, and the rest rated a Sell or a Strong Sell. Here are the 13 that look best:
(1 is the highest)
|Dollar Thrifty||DTG||81.89||Strong Buy||2.6|
Now, I’m not suggesting that you run out and buy these stocks. And please note that technical ratings are pretty short-term in nature. But if you want to start building your own hedge fund, these might be a few companies to consider.
Next I’ll tell you about the 14 of top 50 hedge fund holdings that look more like sells than buys to me!