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Apple Is Now Held By 190 Hedge Funds, And Other Groupthink Observations

Tyler Durden's picture




 

Perusing the latest hedge fund trend monitor from Goldman Sachs, we find that the world's biggest groupthink stock and hedge fund hotel, Apple has just been upgraded from 5 stars to 6 stars. Compared to our last update, when we uncovered that a whopping 181 funds were long the name, this number has subsequently risen even more, and most recently 190 hedge funds (not including mutual funds) were long the name. Should the company, which is priced beyond perfection, have some unpleasant news to report ever in its future, just hedge funds will need at least 2 straight days to liquidate their holdings in the name.

Going down the list, all of the top 10 most popular stocks are held by at least 100 hedge funds, in essence this means that with everyone chasing the same trades, and with an ever greater confluence of investment theses, there is increasingly less logic in paying someone 2 and 20 when virtually everyone is pursuing the same long strategies. And lastly, there will very soon be an ETF for that.

Here is Goldman's summary of hedge fund exposure:

Materials exposure rose in 3Q but gold allocation is not the cause

Allocation to Materials rose by 160 bp to 8.5% in 3Q, and Materials remains the most overweight sector relative to the Russell 3000 (8.5% vs. 4.1%).
Using long-only single- stock equity and ETF positions, hedge funds still appear overweight (7.9%). When we combine long and short exposures in both single stocks and ETFs, hedge funds appear to hold a 12.7% net weighting in Materials.

Hedge fund positioning implies the use of gold as an inflation/deflation hedge
. Hedge Funds own approximately $8.6 billion of the SPDR Gold Trust ETF (GLD) and three of the four Materials stocks in our Hedge Fund VIP (GSTHHVIP) basket also have a gold focus: Barrick Gold (ABX), Freeport-McMoRan Copper & Gold (FCX) and Newmont Mining (NEM).

However, this quarter’s Materials increase does not appear to be gold-related. The aggregate ownership of the Russell 3000 Gold subsector actually decreased by 17bp. Aggregate holdings of GLD increased by $555 million to $8.6 billion, but much of the increase may be performance-related. Even with the increase, hedge fund long GLD holdings are now 1.2% percent of the total long portfolio, down from 1.3% in 2Q 2010.

The increase in Materials allocation during 3Q 2010 appears to be M&A-related
. In mid-August, BHP Billiton announced a hostile takeover of Potash Corp (POT). Hedge fund ownership of POT rose from 2% to 16%. The average weight of POT in hedge fund portfolios rose to 0.8% from 0.1%, almost half of the long allocation increase in Materials between 2Q 2010 and 3Q 2010. The percent of Potash’s market cap held short did not have the same dramatic increase, further skewing the long/short allocation difference. The acquisition was cancelled in mid-November, after the 13-F holdings date.

Analyzing hedge fund sector positioning, net exposure, and size tilt

Hedge funds’ net weighting in Information Technology is the highest of all sectors at 20% followed by Health Care. Hedge Funds remained most underweight Consumer Staples and Financials.

The typical hedge fund allocates 35% of its assets to stocks with less than $2 billion in equity capitalization and 35% to large–caps ($10+ billion). Mid-cap stocks ($2-$10 billion) account for 30% of the average fund’s portfolio. On an aggregate asset basis, hedge funds allocate just 20% of their assets to small-cap stocks, while 45% is allocated to large- cap stocks. The difference between the average and the aggregate suggests that the hedge funds with the largest assets under management target large-cap stocks.

And just like financials outperformed in Q4 as HFs rushed to fill underexposure, so too GLD may soon suffer the same fate, since it appears that gold, which outperformed stocks by nearly three times in 2010, was once again unloved in Q3 by hedge funds.

Hedge Funds appear 9pp (900 bp) overweight Materials when comparing their net weighting with the Russell 3000. Hedge fund long-only single-stock equity holdings indicate funds are overweight Materials relative to the Russell 3000 (8.5% versus 4.1%). Using long-only single-stock equity and ETF positions, hedge funds still appear overweight (7.9%). Short interest data indicates Materials accounts for 4.8% of all short single-stock equity and ETF positions. Combining long and short data, hedge funds appear to hold a 12.7% net weighting in Materials and are more overweight relative to the Russell 3000 than long exposure suggests.

Materials sector allocation now represents the biggest discrepancy between long and short portfolio positioning. This is the first time since 2006 that Financials positioning has not been the biggest discrepancy.

Hedge fund positioning implies the use of gold as an inflation/deflation hedge.
Hedge Funds own approximately $8.6 billion of the SPDR Gold Trust ETF (GLD) and three of the four Materials stocks in our Hedge Fund VIP (GSTHHVIP) basket also have a gold focus: Barrick Gold (ABX), Freeport-McMoRan Copper & Gold (FCX) and Newmont Mining (NEM).

However, this quarter’s Materials increase does not appear to be gold-related.
The aggregate ownership of the Russell 3000 Gold subsector actually decreased by 17bp. Aggregate holdings of GLD increased by $555 million to $8.6 billion, but much of the increase may be performance-related. Even with the increase, hedge fund long GLD holdings are now 1.2% percent of the total long portfolio, down from 1.3% in 2Q 2010.

The increase in Materials allocation during 3Q 2010 appears to be M&A-related. In mid-August, BHP Billiton announced a hostile takeover of Potash Corp (POT). Hedge fund ownership of POT rose from 2% to 16%. The average weight of POT in hedge fund portfolios rose to 0.8% from 0.1%, almost half of the long allocation increase in Materials between 2Q 2010 and 3Q 2010. The percent of Potash’s market cap held short did not have the same dramatic increase, further skewing the long/short allocation difference. The acquisition was cancelled in mid-November, after the 13-F holdings date.

Next, on the topic of concentration, Goldman notes the following:

We define “concentration” as the share of market capitalization owned in aggregate by hedge funds. The strategy of buying the 20 most concentrated stocks has a strong track record over more than eight years. Since 2001, the strategy has outperformed the market by an average of 296 bp per quarter (not annualized). The back test suggests that this strategy works in an upward trending market but tends to perform poorly during choppy or flat markets. The stocks in the basket tend to be mid-caps (at the lower end of the S&P 500 capitalization distribution), which have outperformed large-caps from 2004 to 2007, contributing to the attractive back-test results. The baskets are not sector neutral versus the S&P 500.

The stocks with the “most concentrated” hedge fund ownership have underperformed the S&P 500 in 2010 ytd by 94 bp (+8.3% vs. +9.2%).
The “most concentrated” stocks underperformed steadily for most of 2007 and 2008, but significantly outperformed in 2009. Our “most concentrated” basket outperformed the S&P 500 by 616 bp in 3Q 2010 (+17.5% vs. +11.3%) after lagging by 303 bp in 2Q 2010 (-14.5% vs. -11.4%).

Our “least concentrated” basket has outperformed the S&P 500 in 2010 ytd by 229 bp (+11.5% vs. 9.2%). The “least concentrated” basket underperformed the market by 79 bp in 3Q 2010 (+10.5% vs. +11.3%) after outperforming by 440 bp in 2Q 2010 (-7.0% vs. -11.4%).

And since the topic of ETFs and how they are used by hedge funds continues to be one of the most misunderstood by the punditry, below is yet another explanation how ETFs are not investing but merely hedging vehicles in a world in which pair trades no longer work.

Hedge funds and ETFs: Hedging tools, not investment vehicles

Hedge funds appear to use ETFs more as a hedging tool than as a directional investment vehicle, based on our analysis of 13-F and short interest filings
. We estimate that hedge funds hold $106 billion in gross exposure to ETFs compared with $1 trillion of gross exposure to single-stocks.

The $81 billion of short ETF positions accounts for 76% of the hedge fund gross ETF exposure. In contrast, single-stock short positions ($356 billion) represent 24% of hedge fund gross single-stock positions. The most shorted ETFs tend to be index hedges (representing $45 billion of the $81 short positions). Commodity-related ETFs appear to be the only ETFs that hedge funds utilize on the long side.

ETFs now represent 4% of long assets, down from 6% in 1Q 2009. This is consistent with a falling correlation environment, in which stock-picking comes into focus.

Continuing with more tables, below are the stocks with the highest change in popularity to the hedge fund community:

Going back to hedge fund concentration here are the names that are the biggest hedge fund hotels by market cap...

...and by industry sector.

Hedge funds also like beat down names. Below are some of the most hedge fund loved names with the highest percentage of short interest as a percentage of their market cap.

And last, since not one day passes in the hedge fund world without a pissing match of some sort, here are the top 50 hedge funds sorted by equity asset girth.

And while we can share more charts, since the only strategy that continues to work without flaws is the heatmapping approach, where HFTs buy stocks if they are green, and sell them if they are red, no amount of data granularity can break the dominant regime until Bernanke says so.

 

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Sun, 01/02/2011 - 14:59 | 842701 ??
??'s picture

Is Apple Evil??


Apple Removes WikiLeaks App From App Store

http://tcrn.ch/hpjGIY

 

Will child labour claims stop you buying Apple?

http://bit.ly/9v81Fj

 

Undercover Report From Foxconn's Hell Factory

http://gizmo.do/d0DdUs

Sun, 01/02/2011 - 15:03 | 842718 velobabe
velobabe's picture

apple is in sole control of dumbing down america, since 1984.

Sun, 01/02/2011 - 15:04 | 842722 Oh regional Indian
Oh regional Indian's picture

Spot on Velobabe. Spooky timing eh?

ORI

Sun, 01/02/2011 - 21:13 | 843249 bigdumbnugly
bigdumbnugly's picture

are there cameras in place like at walmart on black friday so we can view hedge fundies running over each other trying to get to the aapl shares before someone else does?

Sun, 01/02/2011 - 22:16 | 843386 roebernsw
roebernsw's picture

Please explain...I am new to all of this.  Love the site.

Sun, 02/20/2011 - 09:15 | 979300 sheeple
sheeple's picture

apple's in sole control of dumbing down china  as well

Sun, 01/02/2011 - 16:37 | 842894 Id fight Gandhi
Id fight Gandhi's picture

Apple can deny human rights violations by saying it used foxconn and other like it to build everything. It gives them deniability. If bad things really turn up, they simply change Chinese builders and keep on rolling.

Actual apple employees are taken care of.

It's green peaceful world with rainbows and unicorns.

Mon, 01/03/2011 - 01:34 | 843611 Air_BernanQE
Air_BernanQE's picture

AAPL may be the biggest loser this year along with QQQQ

Sun, 01/02/2011 - 14:46 | 842702 Dr. Porkchop
Dr. Porkchop's picture

Steve jobs is putting out a new iWidget that will produce a reality distortion field powerful enough to ignore all pesky negative nellies... Once the Ben bernank places it into the QE2, there will be no stopping it!!... Our only hope is to find the flux capacitor.

Sun, 01/02/2011 - 14:49 | 842704 Blano
Blano's picture

It's Jan. 2nd and I'm already falling behind.

Sun, 01/02/2011 - 19:05 | 843085 spekulatn
spekulatn's picture

Awesome. 8)

Sun, 01/02/2011 - 14:54 | 842705 Oh regional Indian
Oh regional Indian's picture

I think it is biblically and stunningly and freakishly appropriate that the fall of man supposedly began with a bite of an apple and the other bookend is an apple with a bite taken out.

Add to that, the culprit then was Eve and this time it's St. Eve.

If that is not stunning symbolism, i don't know what is.

ORI

http://aadivaahan.wordpress.com/2011/01/01/2011/

Sun, 01/02/2011 - 15:03 | 842720 velobabe
velobabe's picture

good observation, ORI. i don't understand St. Eve?

Sun, 01/02/2011 - 15:15 | 842737 Oh regional Indian
Oh regional Indian's picture

St. Eve. 

St.eve, like Jobs?

ORI

Sun, 01/02/2011 - 15:48 | 842789 Byte Me
Byte Me's picture

.

Sun, 01/02/2011 - 21:29 | 843287 chindit13
chindit13's picture

ORI,

The fall of humanity began because god only created Adam and Eve.  Their kids had no choice but to marry each other.  Thus, we're a species of inbreds from the get-go.

Kind of explains things.

Mon, 01/03/2011 - 02:42 | 843675 Oh regional Indian
Oh regional Indian's picture

;-)

Merry new decade to you Chindit. How is life in your parts with Soo Key So free?

ORI

Mon, 01/03/2011 - 10:51 | 844136 chindit13
chindit13's picture

Merry new decade to you, too, ORI.

Surprisingly, they've been giving ASSK a long leash.  She has been her usual dignified self, and stated that since she has been "away", she wanted to hear what the populace thinks about things before she finalizes her current opinions.  Mood remains cautious but a touch hopeful.

By the way, I have spent a month or so visiting your land and catching up on both the economy and Bollywood.  Kind of fell for Priyanka Chopra.

Mon, 01/03/2011 - 13:04 | 844437 velobabe
velobabe's picture

you have said that twice, now. good luck†

Sun, 01/02/2011 - 14:55 | 842710 Boilermaker
Boilermaker's picture

This will surely give Harry Wanger an aneurysm...

Sun, 01/02/2011 - 14:58 | 842714 Prof Gulliver
Prof Gulliver's picture

No worries. Apple is TBTERBN*

 


*too big to ever report bad news

Sun, 01/02/2011 - 16:11 | 842832 Mercury
Mercury's picture

Steve Jobs is living on borrowed time.  It is very uncertain what Apple will be like post-Jobs.

Mon, 01/03/2011 - 13:08 | 844443 NotApplicable
NotApplicable's picture

Lest he crack-up in an accident, that man is never going to die.

Mark my word, they will iBorg him.

Sun, 01/02/2011 - 15:13 | 842732 RobotTrader
RobotTrader's picture

Apple coming out with new products at the CES show in Vegas Jan. 6th.

They are the masters of consumer product hype and spin.

Sun, 01/02/2011 - 15:30 | 842761 bob_dabolina
bob_dabolina's picture

So were the guys at Enron.

Sun, 01/02/2011 - 16:50 | 842919 ??
Sun, 01/02/2011 - 18:30 | 843042 Id fight Gandhi
Id fight Gandhi's picture

Unless they announce iPhone to new carriers there's not much buzz happening. Even that is already priced into the stock.

A new iPad with a camera, little quicker, lighter but priced the same is expected. All the leaked Chinese third party accessories show that.

As usual, there will likely be a rise into the show on the stock and a sell off and trickle down...

Mon, 01/03/2011 - 00:43 | 843570 TemporalFlashback
TemporalFlashback's picture

AAPL is opening up the App store for the Mac on the 6th. No new hard products, though.

Mon, 01/03/2011 - 04:28 | 843736 No More Bubbles
No More Bubbles's picture

You are a master of NOTHING!  Not charts, not girls in bikini's and certainly not accurate information!  Crapple WILL NOT be at CES!

Sun, 01/02/2011 - 15:23 | 842750 Racer
Racer's picture
"iPhone alarms hit by New Year glitch  Setting New Year single alarms was to no avail

A glitch on Apple's iPhone has stopped its built-in alarm clock going off, leaving many people oversleeping on the first two days of the New Year.

Angry bloggers and tweeters complained that they had been late for work, and were risking missing planes and trains."

Sun, 01/02/2011 - 15:44 | 842784 Arius
Arius's picture

does this mean Apple surpassed PM as an overcrowded trade?

after all you cant eat gold but sure love to it apples...its all about marketing folks...got to sell this idea to the biggest marketeer of them all Mr. C at Cramerica :-)

Sun, 01/02/2011 - 15:47 | 842786 ThisIsBob
ThisIsBob's picture

Holy Cow, Botman! I thought that hedge funds were manned by rocket surgeons employing sophisticated and esoteric trading strategies.  But they are buying and holding Apple?  Jeezus, I can do that from here.

Sun, 01/02/2011 - 15:56 | 842803 imapopulistnow
imapopulistnow's picture

Nothing like success to change the perceptions of the progressives.  Apple has barely made inroads into the growing emerging markets.  They are doing everything right that Softy does wrong.  I would never buy an Apple product in the past because I didn't want to pay the premium to feel "morally superior".  Now that it is out of favor with the progressives, I can change my buying habits. 

Sun, 01/02/2011 - 16:14 | 842839 buzzsaw99
buzzsaw99's picture

I never grammar nazi typos here but crAAPL has two As and one P. [/sorry]

Sun, 01/02/2011 - 16:22 | 842857 Comrade de Chaos
Comrade de Chaos's picture

There is a nice video that provides  good insights on the groupthink:

 

http://www.youtube.com/watch?v=TrNIuFrso8I&feature=player_embedded

 

It often works until ... it DOESN'T. 

Sun, 01/02/2011 - 17:39 | 842994 Arius
Arius's picture

interesting stuff...thanks for sharing

Sun, 01/02/2011 - 18:09 | 843008 SwingForce
SwingForce's picture

Sure! A Toy Company should definitely be worth more than any other company in the WORLD who owns natural resources underground like Exxon/Mobil (or a gold mining company).
How about an ipod based currency? Everything's digital right? Hey wait, where's Cramer, how about this idea?
iTUNES CREDIT! Wow, buy bread at Publix and pay by waving your ipod/iphone up in the air, around your head 2 times, bowing down low and clicking your heels 2x while saying, "There's no place like DisneyWorld", uh, or "Heil Steve Jobs!"
Get a grip people. Wanna buy some AIR?

Sun, 01/02/2011 - 18:34 | 843045 Id fight Gandhi
Id fight Gandhi's picture

iTunes Does blow. It sucks to get an app that crashes or have your kid play a game that deducts real money automatically. Then ignore and deny emails and say they don't refund apps.

Sun, 01/02/2011 - 18:40 | 843051 Trimmed Hedge
Trimmed Hedge's picture

It's a new paradigm, and everybody who doesn't buy AAPL now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their AAPL will continue its 30%+ yearly price increase.

Non-buyers, and anybody dumb enough to short, will not be able to afford a $10,000,000 share of AAPL in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

Sun, 01/02/2011 - 19:05 | 843084 Ese Pinche
Ese Pinche's picture

funny... reminds me of a conversation I had with a friend of mine in california 3 years ago.  She was telling me about how she was never going to be able to afford a house... ever.... because prices were "never going to slow down and gains were permanent."... I quote.

Fri, 01/07/2011 - 16:02 | 857271 Common_Cents22
Common_Cents22's picture

They gotta cash out sometime, or not.  Maybe AAPL shares will be the new currency.     that'll be 1,000 AAPL's please.

Sun, 01/02/2011 - 18:43 | 843057 DoctoRx
DoctoRx's picture

Personally I don't "get" the appeal of Apple's products.  But I like GARP stocks, financial strength, and no fooling around with "non-GAAP" BS earnings.  When AAPL releases Dec 2010 earnings in Jan 2012, I wouldn't be surprised to see that today's price is 10X CY 2011 earnings after netting out its to-be even more insane cash and cash-equivalent holdings assuming it makes no major acquisition or pays out a large dividend etc.

I also suspect that keeping the stock price in triple digits has diminishing the great unwashed from speculating in the stock.  

I have been commenting favorably on AAPL and gold for months on ZH.  

I wonder how the TD that sees so clearly into the US Gov't's (and Euroland's etc) Ponzi financial scheme can be so different from the one that picks on one of the truly great growth vehicles of our age as "priced for perfection" when there are so many truly loony-priced, weak companies out there to pick on.  

Sun, 01/02/2011 - 18:46 | 843063 jbc77
jbc77's picture

What are we talking here? Something as simple as a chunky earnings miss could essentially torpedo the entire Nasdaq? Sounds like it. Boy would I love to see that.

I watched "The Smartest Guys in The Room", Enron story for the second time last night. Whats similar in this situation is how all the analysts at that time pitched Enron stock to high heaven, heaping nothing but praise on the stock. They also took Skilling's word on earnings and not one analyst knew how Enron made money. One was quoted as saying it's a black box and you just have to take their word for it. What was also scary is that the were the poster child for mark to market accounting. Isn't that what the big banks are using to cook their books now? Yup.

Ya know people, we're literally standing in the middle of a field, surrounded by landmines.  Eventually someone is going to step on one. The entire financial system is just a fraud and ugly thing and we've got almost the entire population walking around without a clue. When the poop finally collides with the fan we are going to have a disaster the likes of which the modern world has never witnessed. I have to tell you, I'm scared of whats ahead.

 

Sun, 01/02/2011 - 19:28 | 843103 Mentaliusanything
Mentaliusanything's picture

You mean if an apple should fall, you might get this.

http://www.youtube.com/watch?v=Pmy5fivI_4U&feature=related

Mon, 01/03/2011 - 13:11 | 844451 velobabe
velobabe's picture

byron wien top stock tip for the new year was enron. went to $80. i sold.

Sun, 01/02/2011 - 21:19 | 843272 Barb Dwire
Barb Dwire's picture

BAC is the number 2 holding? WTF??? Maybe my June puts aren't such a good idea - what do they know that I don't?

Sun, 01/02/2011 - 22:20 | 843389 Freddie
Freddie's picture

BAC aka Bank of America is the second largest holding.  They must be crazy.  Apple supposedly makes up about 23 to 25% of the QQQQ portfolio.

Sun, 01/02/2011 - 21:23 | 843280 ageofreason
ageofreason's picture

I bought an Iphone last year....I would have been better off pissing in the wind..............

Sun, 01/02/2011 - 21:50 | 843345 DoctoRx
DoctoRx's picture

Not if you were to have pissed into the wind.

Sun, 01/02/2011 - 23:32 | 843489 max2205
max2205's picture

Apple is the new msft. All bought up and hedged. Bet it doesn't move more than 20% up or down in the next ten years. And it will issue a div

Mon, 01/03/2011 - 01:32 | 843610 Air_BernanQE
Air_BernanQE's picture

Can't laugh more on this...

Mon, 01/03/2011 - 04:57 | 843763 TruthInSunshine
TruthInSunshine's picture

Apple's the new IBM or MSFT, ftmfw!

Mon, 01/03/2011 - 08:21 | 843907 Grand Supercycle
Grand Supercycle's picture

AAPL has reached my $325 target and downside is expected now.

The 325 area my prove to be a key level.

http://stockmarket618.wordpress.com

Mon, 01/03/2011 - 12:56 | 844399 Don Birnam
Don Birnam's picture

Speaking of the retail side of the Groupthink equation, fully 12% of the assets in the $ 61 billion Fidelity Contrafund are represented by but two names: Apple ( 7.1% ), and Google ( 4.9% ). 

"May I supersize that Apple position for you, Mr. Danoff ?"

Do NOT follow this link or you will be banned from the site!