Goldman Sachs VIP List of Hedge Fund Equity Positions Turns Defensive

Aug 20 2015 | 7:42pm ET

Goldman Sachs has released its latest list of the most popular stocks held by hedge funds.

Since 2001, this list of “very important positions” has outperformed the S&P 500 in 67 percent of calendar quarters and by an annualized rate of 2.88%, according to Bloomberg.

So far this year, the VIP list has slightly outpaced the S&P 500, up 3.3% compared to 2.9% for the S&P through yesterday. 

The VIP positions have correlated strongly with cyclical industries for most of the past five years, according to Goldman. However, this year, the top picks are trending toward more towards defensives than cyclicals for the first time since 2011.

Positions were added in health-care, utility, consumer-staples and telecom industries, i.e. those sectors typically thought to hold up better during an economic slowdown, while hedge funds have starting paring back on financial, energy, technology, consumer and commodity companies.

Given the performance of energy, commodity and technology companies so far this year, the positioning is hardly surprising. But it does suggest hedge fund managers remain concerned about weakening global economic performance and are preparing their portfolios in case the worst is not yet over. 

Meanwhile, the steady rise in the U.S. dollar has forced managers to concentrate on companies with less exposure to international growth, while turnover fell to a new low of 27 percent. In fact, the top 25% of positions turned over only 12 percent, according to Bloomberg. 

Top stocks held by hedge funds as of June 30, noted Goldman, were Allergan, Apple, Facebook, AT&T, and Time Warner Cable. However, small caps have increasingly gained traction among hedge funds, the report noted, with the typical hedge fund allocating roughly 36% of its assets to small-caps versus 44% to blue chips.

The report, while informative, is not entirely complete, since hedge funds do not have to disclose derivative positions such as option contracts and swaps, and are not required to report short positions.


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