Hedge funds leaned into technology and industrial stocks in the third quarter, while moving away from consumer staples and real estate.
Within 45 days of the end of each quarter, hedge funds must report their portfolio holdings to the Securities and Exchange Commission on a regulatory form known as a 13F. In a study published Monday evening, a team of
analysts assessed the holdings of 833 hedge funds that managed $2.1 trillion as the fourth quarter began.
has soared since the start of the year, returning 27%, including dividends, through Monday’s close. The average equity hedge fund, meanwhile, has managed only a 10% return. A basket of hedge funds’ top 50 holdings did better, returning 23%, but it still lags behind the market.
Managers continued to double down on their best ideas. Goldman found that, on average, funds’ top 10 long positions accounted for 69% of their holdings, up from 57% 15 years ago. They are also holding on to their positions longer.
“Last quarter the average fund turned over just 25% of distinct equity positions, a figure that typically registered between 35% and 40% per quarter during the last cycle,” wrote the Goldman analysts. “Turnover of the largest quartile of positions was just 15%.”
Hedge funds increased their positioning in information-technology stocks in the third quarter but remain less exposed to the sector compared with the
Russell 3000 index
of most U.S. stocks. Tech stocks make up the greatest weight on aggregate in hedge fund portfolios, at 18.9% of assets, but below the index’s 21.1% sector weight. Compared with the Russell 3000, hedge funds are most overweight health care, which represents 17.4% of their combined holdings, almost 4.5 percentage points more than the index.
Other overweights in hedge fund holdings include consumer discretionary, industrials, and communication services. Hedge funds have their greatest relative exposure to industrials since 2008, with a 2.4 percentage point larger tilt versus the index. Materials and energy are at their lowest tilt since 2007, but both remain overweight versus the Russell 3000.
Consumer staples and financials are the most out-of-favor sectors—they represent underweights of 4.8 and 4.2 percentage points, respectively, to the index.
The favorite new buys of hedge funds in the third quarter are topped by a pair of financial technology and services firms:
(ticker: FISV) and
Fidelity National Information Services
(FIS). Other big new buys include
(ATVI), Salesforce.com (CRM), and General Motors (GM). The list of reduced positions last quarter is topped by T-Mobile US (TMUS) and
(ZNGA). Among other top sells are
On an individual company level, following the smart money has been a winning strategy over the past 18 years, according to Goldman. Since 2002, the stocks that saw the largest number of new hedge fund investors in a quarter outperformed other stocks in their sector by an average of 0.52 percentage point in the following quarter.
The Goldman team found the reverse holds true as well: Stocks with the largest decline in the number of hedge-fund owners in a quarter have underperformed their sector peers by 0.60 percentage point over the next quarter.
Here are the top 10 new adds and most exited positions by hedge funds in the third quarter:
Write to Nicholas Jasinski at email@example.com