Goldman Releases Key Reports on Hedge Fund and Mutual Fund Trends

Goldman Releases Key Reports on Hedge Fund and Mutual Fund Trends 

Today, Goldman released two of its highly anticipated periodic reports: the Hedge Fund Trend Monitor and Mutual Fundamentals. These reports provide a comprehensive overview of the quarterly activities and fund flows of hedge funds and mutual funds, respectively. Both reports are accessible to pro subscribers. Here are the key takeaways:

Hedge Fund Trend Monitor

Performance:

US equity long/short hedge funds have achieved a robust +8% year-to-date (YTD) return.

The strong performance of popular long positions has bolstered hedge fund returns despite a recent short squeeze in widely shorted stocks.

Goldman's Hedge Fund VIP list, which includes the most popular long positions (ticker: GSTHHVIP), has returned +16% YTD, outperforming the S&P 500 (+12%) and the equal-weight S&P 500 (+7%).

The most shorted stocks (GSCBMSAL) surged +25% in mid-May, contributing to their +7% YTD return.

Leverage and Short Interest:

Hedge funds have slightly increased net leverage alongside the market rally while maintaining record gross leverage.

Volatility in concentrated short positions led funds to shift out of favored longs to cover shorts.

The latest short squeeze was less intense compared to those in 2021 and December 2023.

Short interest in the median S&P 500 stock remains low at 1.8% of float, with funds favoring macro products.

Hedge Fund VIPs:

Mega-cap stocks remain top long positions for hedge funds.

The top five stocks in the VIP list are AMZN, MSFT, META, GOOGL, and NVDA, with AAPL joining the top six.

The VIP list, comprising 50 stocks most frequently among the top 10 holdings of fundamental hedge funds, has outperformed the S&P 500 in 60% of quarters since 2001, with an average quarterly excess return of 47 basis points.

New entries in the VIP list include ALIT, APP, DELL, DFS, GDDY, JPM, MU, NEE, SE, SN, VST, WDC, WIX, and X.

Mega-Caps and Artificial Intelligence:

Hedge funds have reduced positions in mega-caps while increasing investments in broader AI beneficiaries.

The "Magnificent 7" stocks' share price performance has helped maintain their 13% weight in hedge fund long portfolios, with AAPL seeing incremental additions.

Hedge funds increased positions in AI-related stocks, particularly in Phase 2 Infrastructure such as MRVL, SNX, AES, and LFUS.

Sectors:

Hedge funds have shifted towards cyclicals, notably in Consumer Discretionary, Financials, and Energy sectors.

DFS, JPM, BK, and SPGI saw significant increases in hedge fund popularity.

Semiconductor stocks' weight in hedge fund portfolios reached a new high of 6.5%, with MRVL and MU being top picks.

Mutual Fundamentals

Performance:

Large-cap mutual funds have performed well YTD, with 45% outperforming their benchmarks, compared to the historical average of 38%.

Fund managers are increasingly optimistic about US equities, with cash allocations dropping to 1.5%, matching the lowest level on record.

Despite this, active mutual funds have experienced $139 billion in outflows YTD.

Themes in Focus:

Mega-Cap Tech: Due to increasing benchmark weights and diversification restrictions, the average large-cap mutual fund was 660 basis points underweight in the "Magnificent 7" in Q1 2024, unchanged from the previous quarter. A net of 120 funds (25%) reduced exposure to MSFT, the largest decline in the group.

AI: Mutual fund managers have generally avoided taking large tracking errors on the AI theme, although exposure to Utilities has reached a 10-year high.

Cyclicals/Defensives: The average large-cap mutual fund maintained a 437 basis points overweight in cyclical industries versus the benchmark, benefiting from investor confidence in economic growth, which led Cyclicals to outperform Defensives (GSPUCYDE) by 4% YTD.

Sectors:

Large-cap mutual funds are most overweight in Financials (+167 basis points) and Industrials (+139 basis points), and most underweight in Info Tech (-341 basis points).

Compared to Q4 2023, funds increased exposure to Consumer Discretionary (+53 basis points) and reduced allocations to Health Care (-42 basis points) and Financials (-34 basis points).

Stocks:

Goldman has rebalanced its Mutual Fund Overweight (GSTHMFOW) and Mutual Fund Underweight (GSTHMFUW) baskets.

New constituents in GSTHMFOW include JCI, GM, TRV, CAH, KDP, DASH, TTD, NET, LHX, PNC, GD, and AMP.

New entries in GSTHMFUW are GE, HON, AMGN, UNP, DLR, and TMO.