Goldman VIP Stocks Lag S&P After Successful Run

Goldman Sachs’ basket of stocks that “matter most” to long portfolios of hedge funds lagged the Standard & Poor’s 500 index through mid-May by 100 basis points, or 1 full percentage point.

This comes on the heels of a 9 percentage-point outperformance in 2013 and a 7 percentage-point outperformance in 2012.

However, if you exclude high-flying Internet and media stocks, which abruptly started to tank in mid-March, the most popular hedge fund positions outperformed the broad market, Goldman points out.

Goldman says the average hedge fund was essentially flat through mid-May compared to a gain of 2 percent for the Standard & Poor’s 500. Equity long-short and macro funds were each down 2 percent year to date.

Each month Goldman publishes its Hedge Fund VIP list of the 50 stocks that “matter most,” which it claims historically has been a profitable way to follow the smart-money crowd. The VIP — Very Important Position — stocks appear most frequently among the top ten holdings of fundamentally driven hedge fund portfolios.

The firm restricts its ranking to hedge funds with ten to 200 distinct equity positions so it can capture fundamentally driven investors and avoid quantitative funds or those it believes mirror private equity investments.

The five stocks topping the ranking as of the end of March were Google, Apple, General Motors, American International Group and Time Warner Cable.

GM moved down from the top spot as the number of funds that count it among their top ten holdings dropped from 75 to 58.

Among momentum stocks that remain in the basket, Amazon.com fell from No. 9 to 24, Priceline.com slipped from 17 to 28, while Equinix dropped from 20 to 42.

In the first quarter there were nine new stocks in the basket, half the historical average. They were American Realty Capital Partners, CF Industries Holdings, Cheniere Energy, Forest Laboratories, Halliburton, News Corp, SunEdison, Verizon Communications and Walgreen Co.

Interestingly, these nine stocks gained on average 19 percent for the year to date, through May 16, compared to a loss of 8 percent on average year to date for stocks that fell out of the basket.

The report analyzed 777 hedge funds with $1.9 trillion of gross equity positions — $1.3 trillion long and $618 billion short — at the beginning of the second quarter of 2014.

Goldman noted that hedge funds reduced their allocations to the most popular growth stocks and moved their technology allocations to underweight.

Overall portfolio turnover rose slightly to 29 percent from record lows, Goldman pointed out. However, the turnover of the largest quartile of holdings remains at an all-time low of 15 percent.

The report pointed out that hedge funds boosted their ETF shorts and reduced their ETF longs to the lowest weight since 2007.