Goldman Sachs' VIP List: Stocks That Matter Most to Hedge Funds ~ market folly

Monday, May 24, 2010

Goldman Sachs' VIP List: Stocks That Matter Most to Hedge Funds

Each quarter, Goldman Sachs updates a list of stocks owned by an overwhelming majority of hedge funds. The aptly named VIP list details 'very important positions' to hedge funds that employ fundamental strategies (rather than trading oriented firms) and we like to cover it due to the obvious tie-ins with our hedge fund portfolio tracking series. Last quarter, we posted up the previous iteration of Goldman Sachs' VIP list and this time around there are a few notable changes to the basket of fifty stocks.

Goldman updates the list each quarter to reflect the most recent hedge fund holdings using the same 13F forms filed with the SEC that we use for our tracking here on Market Folly. Twelve new stocks appeared on the list, representing stocks hedge funds as a whole were buying in the first quarter 2010, including: CIT Group (CIT), Alcon (ACL), CF Industries (CF), Coca-Cola Enterprises (CCE), Kraft Foods (KFT), Xerox (XRX), Assured Guaranty (AGO), Baidu (BIDU), Equinix (EQIX), Gilead Sciences (GILD), Liberty Global (LBTYA), and News Corp (NWSA).

As we've already detailed in our selective hedge fund tracking, many funds have large stakes in CIT Group, such as David Einhorn's Greenlight Capital. Not to mention, many firms are bullish on shares of Kraft, like Bill Ackman's Pershing Square. The addition of Xerox is curious because we've slowly but surely started to see more hedgies adding shares to their portfolios but have yet to see anyone provide a thesis. It should come as no surprise that Baidu joins the list given the hoopla surrounding Google's exit from China, as Baidu has been the prime beneficiary there. And lastly, we make note of Equinix gracing the VIP list as we've seen numerous prominent hedge funds in and out of this name over the past few quarters.

Hedge fund returns are often dependent on only a few key stocks and a fund's top 10 holdings typically represent 60% of their assets. As such, it makes complete sense that the VIP list tracks stocks that most frequently appear in the top ten holdings of various fundamentally driven hedge funds. Goldman's VIP basket of 50 stocks has outperformed the S&P 500 by 67 basis points on a quarterly basis since 2001 with a Sharpe ratio of 0.24. Those of you with Bloomberg Terminal access can look it up via GSTHHVIP.

Here are the top 10 stocks from Goldman Sachs' VIP List ranked by the number of hedge funds that owned that specific stock as a top holding at the end of the first quarter:

1. Apple (AAPL): 72 hedge funds owned it as a top 10 holding
2. Bank of America (BAC): 46

3. Google (GOOG): 43

4. Microsoft (MSFT): 40

5. JPMorgan Chase (JPM): 39

6. Pfizer (PFE): 34

7. CIT Group (CIT): 31

8. Intel (INTC): 25

9. Qualcomm (QCOM): 25

10. Cisco Systems (CSCO): 22

And embedded below is the rest of the 50-stock basket that makes up Goldman Sachs' VIP List:

You can download a .pdf here.

Keep in mind that if you wish to replicate hedge fund portfolios via SEC filings like Goldman's VIP list, you can easily do so via Alphaclone (MarketFolly readers receive a free 30 day trial). It is by far the best replicator out there and we use it for all of our hedge fund tracking. And if you want to know what prominent hedge funds are up to specifically, head to our portfolio tracking series that is updated daily.

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