Goldman’s Hedge Fund Basket Handily Beats S&P 500

A basket of the 20 stocks with the largest share of their market capitalization held by hedge funds, as tracked by investment bank Goldman Sachs, has trounced the markets.

According to Goldman Sachs, this strategy — which it calls its hedge fund concentration basket — is beating the Standard & Poor’s 500 index by 9 full percentage points so far this year and is poised to outperform the market for the fourth straight year. Altogether, this collection of stocks, all of which must be included in the S&P 500, has outperformed the benchmark during 70 percent of the quarters tracked by the investment bank by an average of 260 basis points, or 2.6 percentage points. Pretty impressive.

In the second quarter, five new stocks joined this elite group of 20: semiconductor maker Broadcom Corp.; Hospira, which provides specialty injectable pharmaceuticals; food giant Kraft Heinz Co.; Signet Jewelers, a retailer; and Starwood Hotels & Resorts Worldwide.

The list is an eclectic mix of food, health care, consumer products and retail. Kraft Heinz leads the pack, with 33 percent of its market cap owned by hedge funds. But this figure is a little funky since the stock did not start trading until July 6 — after the period for which this data captures — following the completed merger of the two food giants.

Goldman says the figure reflects the ownership of the new company based on who held the two separate companies’ shares on June 30. It then used the July 6 market cap of the new company to determine the concentration.

Air Products and Chemicals, which ranks second, is currently the target of high-profile activist Pershing Square Capital Management, which owns about 9.55 percent of the shares. Greenwich, Connecticut–based Tiger Cub Viking Global Investors is the fifth-largest shareholder, while another activist, New York–based Soroban Capital Partners, headed by Eric Mandelblatt and Gaurav Kapadia, also has a sizable stake.

This is one of several stocks on the list that are targets of activists, including Soroban. For example, energy infrastructure giant Williams Cos. counts Keith Meister’s New York–based Corvex Management as its second-largest shareholder, while Soroban is the fourth largest. Other major investors include Stephen Mandel Jr.’s Greenwich, Connecticut–based Lone Pine Capital and Richard Perry’s New York–based Perry Capital.

Software maker Autodesk has 22 percent hedge fund ownership, including, yes, Soroban, the fourth-largest shareholder. Other significant holders of the software company include Lone Pine Capital and Ricky Sandler’s New York–based Eminence Capital, which counts it as its sixth-largest holding.

Interestingly, Autodesk is the only technology or Internet company in this cozy group. There are also two media companies, including Netflix, which is more like a future media/streaming company.

It ranks No. 19 with 19 percent hedge fund ownership. Tiger Global Management was the third-largest investor, while New York–based SRS Investment Management, founded by Tiger Global alum Karthik Ramakrishna Sarma, was the ninth-largest investor.

Here is the list of the 20 companies and their hedge fund ownership.