Georg,
After spending the past week building stock factors on different ETFs, mutual funds and hedge funds, it is now clear to me that it is way better to ride on the performance of fundamental star hedge fund managers than ETFs or mutual funds with good past performance. I have now chosen four hedge funds (Tiger Global, Bluecrest Capital, Lone Pine and Viking Global) to replicate and will allocate capital in these strategies. It seems that Goldman Sachs is doing more or less the same and provides these portfolios for their institutional clients (pls see below the two article from CNBC).
Regards
James
Goldman has a portfolio which tracks hedge funds that is trouncing the market — here’s what’s in it
Published Fri, Feb 22 201910:59 AM ESTUpdated Fri, Feb 22 20191:45 PM EST
Key Points
: The so-called hedge fund “very important position” basket contains the 50 stocks that appear most often on the top 10 holdings of fundamentally-driven hedge funds.
: The portfolio is up 14 percent year to date, more than doubling the average equity hedge fund’s 6 percent gain and outperforming the S&P 500′s 11 percent return.
: Goldman revealed that the most-owned holdings in the basket are very tech heavy, with Amazon, Microsoft, Facebook, Alphabet and Alibaba being the top five.
: The basket also has a track record of beating the market as it has outperformed the S&P 500 in 62 percent of quarters since 2001, Goldman said.
One of Goldman Sachs’ secret portfolios that tracks hedge funds’ most popular long positions is crushing the market.
The so-called hedge fund “very important position” basket contains the 50 stocks that appear most often on the top 10 holdings of fundamentally-driven hedge funds, according to the firm. Goldman analyzed 880 hedge funds with $2.1 trillion of gross equity positions to compile the latest portfolio, which is based on funds’ recently released fourth-quarter regulatory filings.
The portfolio is up 14 percent year to date, more than doubling the average equity hedge fund’s 6 percent gain and outperforming the ’s 11 percent return. Goldman revealed that the most-owned holdings in the basket are very tech heavy, with Amazon, Microsoft, Facebook, Alphabet and Alibaba being the top five. These five stocks also made last quarter’s top five.
“Recent hedge fund returns have benefited from the outperformance of the most popular long positions as well as the decision to increase net length ahead of the equity market bottom in December 2018,” Ben Snider, an equity strategist at the bank, said in a note Friday.
The smart money managed to chase the huge tech comeback with these top-five names rebounding from their December lows and rising as much as 25 percent in the new year. Social media giant Facebook is up 22 percent in 2019 after losing more than 20 percent amidst fourth quarter’s market turmoil. E-commerce powerhouse Amazon has posted a nearly 8 percent gain in the new year after losing more than 25 percent in the fourth quarter. Alibaba has returned more than 25 percent year to date.
The basket also has a track record of beating the market as it has outperformed the S&P 500 in 62 percent of quarters since 2001, Goldman said.
Other stocks in the hedge fund VIP basket include Visa, Netflix, Bank of America, Paypal and Citigroup.
Rising Stars
By the end of the fourth quarter, hedge funds had ramped up their bets on CVS Health as 108 out of 880 hedge funds held the drugstore chain, up from 64 fund last quarter, the largest increase in hedge fund popularity, according to Goldman Sachs.
Software company Red Hat also gained popularity with 83 hedge funds owning the stock, up from 42 last quarter. Notably, Warren Buffett’s Berkshire Hathaway last week revealed a new stake of 4.175 million shares in Red Hat, according to the company’s 13-F filing.
Although gaining popularity, CVS and Red Hat still didn’t make Goldman’s hedge fund VIP portfolio because they’re not yet in the top holdings of enough funds.
A few of the secret portfolios Goldman gives clients are doubling the market’s return this year
Key Points
: Three of Goldman’s secret portfolios are posting a 11 percent gain so far this year, more than doubling the S&P 500′s year-to-date return.
: A majority of Goldman’s 39 proprietary baskets are beating the market this year.
: These portfolios are only made available for its clients.
: The three top baskets this year are “high revenue growth,” “high Sharpe ratio,” and “dual beta.”
Goldman Sachs apparently knows the key to beating the market, but the bank is only telling its elite club.
The bank has created 39 portfolios exclusively for its clients, and 34 of them are outperforming the market this year while three are posting a 11 percent gain, more than doubling the ‘s year-to-date return. The three winning baskets are “high revenue growth,” “high Sharpe ratio,” and “dual beta,” according to a broad note to clients on Monday explaining the portfolios’ constructions and growth outlooks.
Goldman has been handpicking stocks based on various proprietary themes and sectors for a decade, but these portfolios are only made available for its clients to trade on the Bloomberg terminal. The bank treats the members of the baskets carefully and doesn’t always disclose all the member stocks, even in its daily and weekly notes.
Along with good track records this month, the baskets also have solid long term track records. However, the bank doesn’t suggest buying and holding the various baskets all at the same time. They recommend certain baskets at certain times based on the type of market environment.
For example, Goldman warned clients at the end of last week about companies with big revenues from China, and specifically Nvidia, days before the chipmaker released surprise disclosure on China slowdown and blew up its stock. In the note, Goldman told clients to avoid its international sales basket and recommended its domestic sales basket instead for investors wanting to hedge against international risks.
High revenue growth
One of the best-performing baskets this year consists of 50 companies in the S&P 500 that have the highest expected sales growth based on the Street’s consensus. The equal-weighted portfolio has returned 10.7 percent so far in January and 143.4 percent since its inception in May 2011, versus the S&P 500′s 5.4 percent and 137.3 percent respectively.
“This basket focuses on companies positioned to use top-line revenue generation instead of margins to drive bottom-line earnings,” Goldman’s chief U.S. equity strategist David Kostin said in the note.
It’s actually no surprise that this portfolio has performed well this year as fewer and fewer companies are able to continue drive organic sales growth on the heels of a global economic slowdown. Many companies have voiced concerns this earnings season about the impact from the slowing demand and weaker consumer confidence.
Netflix, Align Technology, Amazon, Autodesk are among the dozens of stocks in this winning basket.
High Sharpe ratio
Another winning factor this year is the Sharpe ratio, a measure of a stock’s performance relative to its volatility. Goldman uses consensus price targets and options six-month implied volatility to measure Sharpe ratios.
“The inclusion of a risk metric has led to consistent outperformance on an absolute basis. The median stock in our basket offers almost double the expected return than the median S&P 500 stock with similar risk,” Kostin said.
The portfolio has returned 11.5 percent year-to date and a whopping 238.8 percent since its inception in December 2009. Stocks selected in this basket include PVH, Conagra Brands, Western Digital and Assurant.
— With reporting by Michael Bloom