The U.S. Securities and Exchange Commission (SEC) has received the latest round of 13F filings from Q4, providing retail investors with a complete picture of institutional equity holdings. Now, investment bank Goldman Sachs has published a report detailing the most — and least — popular stocks among hedge funds.
Goldman analyzed 758 funds with total equity assets under management (AUM) of $2.3 trillion. The bank also analyzed 543 mutual funds with a total AUM of $2.4 trillion. “Hedge funds and mutual funds generally agree on sectors and factors, with Financials (XLF) and Energy (XLE) two notable exceptions; hedge funds are underweight while mutual funds are overweight,” explained strategist David Kostin.
According to UBS, hedge funds have been positioned well this year. Equity-hedged funds returned 4.2% in January, while the average hedge fund returned 2.8%. In total, around 75% of all hedge funds have positive returns as of January. This compares to the S&P 500’s January return of 6.3%.
You might be wondering, “How did hedge funds perform well if they underperformed the S&P 500?” That’s because many hedge fund clients invest in order to achieve a return that is not correlated with the S&P 500. That thesis played out well last year when the average hedge fund declined by 4.1%, compared with the S&P 500’s loss of 23.9%.
With that in mind, let’s take a look at five stocks that hedge funds have been buying.
Hedge Funds Favor These Five Stocks
- Fiserv (NASDAQ:FISV): 18 surveyed funds own FISV in their top 10 positions, while mutual funds surveyed are underweight by 14 basis points (bps).
- Charles Schwab (NYSE:SCHW): 13 funds own SCHW in their top 10 positions, while mutual funds are underweight by 17 bps.
- Workday (NASDAQ:WDAY): 15 funds own WDAY in their top 10 positions, while mutual funds are underweight by 10 bps.
- Humana (NYSE:HUM): 11 funds own HUM in their top 10 positions, while mutual funds are underweight by 11 bps.
- Uber (NYSE:UBER): 35 funds own UBER in their top 10 positions, while mutual funds are underweight by 14 bps.
Kostin has noted, “The group typically struggles during periods of market stress but has a strong track record of outperformance at the expense of higher volatility.”
There are two ways to analyze hedge fund ownership. One way is to favor stocks with heavy ownership, as institutional investors can provide liquidity and a price floor. The second way is look out for stocks with low hedge fund ownership, but healthy fundamentals. That way, an investor could get into a stock before institutional investors. Once and if the institutional investors get in, the stock could rise.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.