Goldman says hedge funds’ favorites are seeing worst stretch ever
Goldman Sachs reports that hedge fund managers are seeing their best underperformance in years. Managers have been forced to move out of the growth stocks they love and instead into more stable companies. According to regulatory filings, Wall Street’s firm examined the assets of 799 hedge funds that had $2.4 trillion worth of equity positions. It then compiled a basket of the most popular long positions, dubbed Goldman’s “Hedge Fund VIP basket,” consisting of 50 stocks that most frequently appear among the largest 10 holdings of hedge funds. The basket has trailed the S & P 500 by 28 percentage points since early 2021, marking its worst stretch on record, Goldman said. In the face rising interest rates, growth stocks were the center of the 2022 market selloff. This led to the underperformance. In an aggressive move against inflation at its 40-year peak, the Federal Reserve increased its benchmark rate by half a point this month. The list of concerns investors have with monetary tightening is endless. They include the threat from war in Ukraine and the pandemic that will strike China. Nasdaq Composite, a tech-leavy stock exchange, has suffered a severe hit, falling 27.4% in the year so far and down 30% from last November’s record high. The S & P 500 has fallen more than 18% this year. Many mega-captech stocks, such as Apple, Amazon, Alphabet, Meta, and Microsoft, remained the most beloved holdings of hedge funds at the close of this quarter. Goldman stated that hedge funds have continued to decrease their exposure to growth stocks despite the weak performance. The bank pointed out that hedge funds’ exposure to information technology firms and consumer discretionary businesses is at its lowest point in more than a decade. In a note, Ben Snider from Goldman Equity Strategy, stated that rising real interest rates have had a significant impact on long-duration stocks and their valuations. In the meantime, hedge funds were quick to add exposure to industrial and material stocks. These sectors have performed well in volatile 2022. The S & P 500 industrial sector is down 14% this year, while the materials grouping has fallen about 8%. TransDigm Group , Fortive and Reliance Steel & Aluminum were some names in these sectors that saw concentrated hedge fund ownership last quarter, according to Goldman.