What Current Hedge Fund Exposure Means For Stocks, And Weekly Chartology

Tyler Durden's picture

Yesterday we presented the latest 13F quarterly compilation summary, as prepared by Goldman's David Kostin, in raw format. Today, we bring you his high level observations on what this update means for stocks from a big picture perspective, as well as thematically. "We estimate hedge funds own roughly 3% of the US equity market. Turnover of all hedge fund positions averaged 32% during 1Q 2011 (roughly 130% annualized). The tilt of hedge fund holdings towards large-cap stocks has been increasing for almost 10 years. The typical hedge fund operates 48% net long, flat versus 4Q 2010. Combining long and short position data, hedge funds have the greatest net portfolio exposure to Consumer Discretionary (18%), Information Technology (16%), and Energy (14%). Our Hedge Fund VIP basket has 15 new constituents: SSCC, BP, MRO, PCLN, VRX, TEVA, YHOO, CVX, MET, NFLX, MA, SINA, CHK, EQIX, and ESV." In addition, for all you technicians, here is the full weekly chartporn from GS.

Full details:

Our most recent Hedge Fund Trend Monitor report analyzed 700 hedge funds with $1.25 trillion of gross equity positions consisting of $822 billion of long stock-specific and ETF equity assets and an estimated $428 billion of short single-stock and ETF positions. We have published our quarterly Hedge Fund Trend Monitor for the past five years and analyzed constituent-level portfolio holdings of US hedge funds since 2001. The current report focuses on hedge fund positions at the start of 2Q 2011 and is based on 13-F filings as of May 15, 2011.

1. We estimate hedge funds own roughly 3% of the US equity market
. For context, US households directly own 33% of the domestic equity market, and indirectly own via mutual funds 21% of the stock market. ETFs account for 4% of the US stock market, slightly more than hedge funds.

2. Turnover of all hedge fund positions averaged 32% during 1Q 2011, representing an annualized rate of nearly 130%. The top quartile of positions (largest holdings) turned over just 18% (72% annualized) while the bottom-quartile of positions (smallest holdings) turned over 45% (180% annualized). Quarterly turnover at the sector-level ranged from a low of 29% in Telecom Services to a high of 37% in Materials (see Exhibit 1).

3. The tilt of aggregate hedge fund holdings towards large-cap stocks has been trending higher for almost 10 years. Roughly 47% of the aggregate assets of hedge funds was invested in stocks with equity capitalizations greater than $10 billion as of 1Q 2011, up from 35% in 2002. Just 19% of aggregate assets are invested in small-cap stocks (below $2 billion). The typical hedge fund allocates 36% of its assets to large-cap stocks ($10+ billion) and 33% to small-cap stocks. The difference between the average and aggregate suggests that the hedge funds with the largest assets under management target large-cap stocks (see Exhibit 2).

4. The typical hedge fund operates 48% net long ($394 billion net/$822 billion long), flat versus 4Q 2010.
We estimate 18% of short positioning is conducted via ETFs with 13% occurring at the broad index level.

5. We estimate hedge funds account for 85% of all short positions. The steady growth of shorts in the US equity market during the past nine years has accompanied the rise in hedge fund assets. Short interest for the S&P 500 rose during most of 2010 before falling in 4Q 2010 and 1Q 2011. Currently 1.9% of equity cap is held short, while the short interest ratio has declined but is above 10-year low reached in late 2009.

6. Combining long and short position data, hedge funds have the greatest net portfolio exposure to Consumer Discretionary (18.3%), Information Technology (15.5%), and Energy (14.0%).
Hedge funds are not benchmarked but relative to the Russell 3000 universe they are 670 bp overweight Consumer Discretionary (18.3% vs. 11.6%), and 640 bp underweight Consumer Staples (3.1% vs. 9.5%).

7. The strategy of buying the 20 most concentrated stocks has a strong track record over more than nine years.
We define “concentration” as the share of market capitalization owned in aggregate by hedge funds. Since 2001, the strategy has outperformed the market 73% of the time by an average of 295 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 “most concentrated” hedge fund ownership basket has outperformed the S&P 500 in 2011 YTD by 502 bp (10.3% vs. 5.2%). See Bloomberg ticker: <GSTHHFHI>.

8. Hedge fund returns are highly dependent on the performance of a few key stocks. The typical hedge fund has an average of 64% of its long equity assets invested in its 10 largest positions compared with 29% for the typical large-cap mutual fund, 19% for a small-cap mutual fund, 18% for the S&P 500 and just 3% for the Russell 2000 index (see Exhibit 3).

9. Our Hedge Fund VIP list (Bloomberg ticker: <GSTHHVIP>) contains the 50 stocks that appear most frequently among the top 10 holdings of fundamentally-driven hedge fund portfolios.
The basket of stocks that “matter most” has outperformed the S&P 500 by 68 bp on a quarterly basis since 2001, with a Sharpe Ratio of 0.25. However, the VIP list has lagged the S&P 500 YTD by 96 bp (4.8% vs. 5.8%). AAPL, MSFT, JPM, GOOG, and C rank as the top five stocks in our Hedge Fund VIP list (see Exhibit 4).

10. Turnover for the VIP basket was slightly below the historical average with 15 new stocks entering the VIP list compared with an average turnover of 16 stocks since 2001
. New constituents: SSCC, BP, MRO, PCLN, VRX, TEVA, YHOO, CVX, MET, NFLX, MA, SINA, CHK, EQIX, and ESV.

From an implementation standpoint, the hedge fund VIP list offers an efficient vehicle for investors seeking to “follow the smart money” based on 13-F filings. The VIP basket has a large cap bias with a median market capitalization of $37 billion compared with $12 billion for the S&P 500. The VIP list contains stocks from seven of the ten sectors.

Summarized in one sentence: "Feel free to collect pennies in front of a steamroller as long as everyone else is doing it." What is left out is "If SHTF Bernanke may or may not bail everyone out this time around." What is certainly not included is: "since there is great career risk if you think like a contrarian, best leave it to someone else, as the black swan trade no longer exists." Of course, the last is completely wrong, and for a summary of the best ones look no further than SocGen's Dylan Grice.

5.21 Kickstart

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JW n FL's picture

***** "Turnover of all hedge fund positions averaged 32% during 1Q 2011 (roughly 130% annualized). The tilt of hedge fund holdings towards large-cap stocks has been increasing for almost 10 years." *****


This is becuase wall Street learned to Leverage More Money out of every deal.. before the Equity Guys Could get to the deal to milk them dry..


Wall Street was a respected place at one time.. and then the New Jersey / Boca Raton Crowd took over.. and with that Leverage used.. fell the first domino in the begining of the end of Wall Street Propper.



Fight Club Ideals, which makes us not just another chat room are!


1. its the internet.. you can be honest.. with me and yourself...

2. no one knows its you! so you can! if you choose! be honest! with me and yourself!

3. you can learn a LOT about yourself when you dont have to hide behind pretense.. you dont have to act kool.. you dont have to have the right answer.. your beliefs mixxed with what you know are what you will share.. if you are honest.. at which point we can figure out what kind of education you need most and first to be a better human fucking being!

4. once you get 1 thru 3.. pay it fucking forward and try.. TRY! to un-dumb the World.. if you talk to 5 people and those 5 people can get it.. then they talk to 5 people.. do you see..


5. so the better you fight here.. the better you will be with sharing out there! you have to make your point in less than 2 minutes.. people have ADD.. and it has to be sourced and sited.. and you have to strike a chord with whomever you are engaging.. you have to find what interests or offends them the most and then.. share with them what will move them! so that they can be reached.


6. once you save a soul it is your burden to ensure that soul stays safe, educated and LOVED! just because I will fight with everyone here.. doesnt mean that I dont really, honestly have hopes that ALL of you will be Blessed! I am leaving God out for the Brothers who dont go that way.


7. there is nothing but the truth.. if you are spreading feelings.. you are part of the problem.. be part of the solution for mankind.. maybe what we start here goes a 100 fucking years before Man has evolved enough to use the knowledge.. maybe its sooner than that? I Hope so!


Much Love for my Brothers and Sisters of Fight Club!

 If anyone would like to add or delete or a lil of both.. speak up! Lets get our shit together.. enough tongue wagging..






Smiddywesson's picture

  "Wall Street was a respected place at one time.. "

Beer almost came out my nose when I read that one.  Wow!  

Wall Street has always been corrupt.  It is just less effeciently corrupt than before.  It is broken and the public has seen it for what it is.  They are destroying the public bilking machine, and that's why the Bernank can't get them to reenter the markets.  If you make a living selling people crappy homes, it's a bad idea to light the homes on fire during your open house.

I like the second part about teaching each other.  I can learn from books, but the stuff you learn here, you can't find it anywhere.  More importantly, books don't call you an f***ing retard when you are wrong.  That service is priceless.  Even more valuable is learning about things you didn't even know you didn't know.  Ya know?

Tail Dogging The Wag's picture

Got farmland? or are you going to end up hungry and sniffin' glue when we reach boiling point? In times of change you need new alternatives and new ideas.

Land in Panama is one of the most undervalued assets in 2011.



In the event of a sale of land from any of the Thorsson Capital properties to any Zero Hedge reader, the vendor (Thorsson Capital) hereby pledges a donation of 1% of the total sale to Zero Hedge, said donation is to be made within 30 working days of settlement.

topcallingtroll's picture

5000 per acre for previously cut mountainous woodland ( no quality timber) is certainly not undervalued even though it may appreciate.

Lots of good land in the pacific northwest , redoubt states, and arkansas for much less.

jeff montanye's picture

imo i like arkansas for much less.  lakes of the ozarks, farmer john's daughters, apple pie moonshine, what they grow there now.  also check out daneric dan's near term bear case.  bring bags of old silver (and new).  but remember they defaulted on the state g.o. in the thirties.

jeff montanye's picture

one can try a frommer but the tijuana bible "the traveling preacher" gives a somewhat dated but still cogent perspective. 

Oracle of Kypseli's picture


My first preaching will be to starve the beast.

  • Get out of debt
  • get out of the stock market
  • work as hard as you can
  • buy only what you need
  • stay in cash
  • have at least 15% in gold and silver coins
  • stay nimble until things improve verifiably.
michigan independant's picture

Been on that path ourself for some years. My Kids "new adults" have zero debt to date under the wrath of me.

Dejean Splicer's picture

"2. no one knows its you!"

Yea, like totally. Zing bitchez!

Mec-sick-o's picture

S&P 500 Earnings

$106 for 2012 (+11%)  bottom consensus $113 (+14%)


Earnings will get squeezed with inflation and/or depressed with lower revenue.


Careless Whisper's picture

GoldmanSachs is issuing reports? with their "conclusions"?

Who the hell do they think they are?

Today's morsel about Goldman is brought to you courtesy of Senator Levin's Report On Wall Street Gangsters (page 391):

Goldman began marketing Hudson 1 securities in October 2006, soliciting clients to buy Hudson securities. It did not fully disclose to potential investors material facts related to Goldman’s investment interests, the source of the CDO’s assets, and their pricing. The Hudson 1 marketing materials stated prominently, for example, that Goldman’s interests were “aligned” with investors, because Goldman was buying a portion of the Hudson 1 equity tranche.1581 In its marketing materials, Goldman did not mention that it was also shorting all $2 billion of Hudson’s assets – an investment that far outweighed its $6 million equity share and which was directly adverse to the interests of prospective investors. In addition, the marketing materials stated that Hudson 1’s assets were “sourced from the Street” and that it was “not a balance sheet CDO.”1582  However, $1.2 billion of the Hudson assets had been selected solely to transfer risk from ABX assets in Goldman’s own inventory.

Ag1761's picture

If you want to make a change, then start by changing the way you think, then help change the way others think. A simple start is to believe absolutely nothing, you don,t need to be loud about it, just go and check it out yourself. Once you are happy with what YOU have found out, go spread it around, just a little. Plant a couple of seeds and watch change grow.


Keep on stackin

JW n FL's picture

I appreciate your opinion.. and I really like that sexxy tier one capital avatar you have!

but I was hoping to find a way to expedite the transfer of knowledge a little faster.. if they can bombard people with bullshit.. we should be able to bombard people with the truth.. I know that sounds crazy and like a long shot plus a lot of work! but why not try? or some of our people who are out of work or retired can help spread the word? I dont know, but what I do know is with the brain power here.. we can figure out something that is better than nothing or slowly..


Once again, planting seeds is very effective.. I just want some miracle grow on steroids to spray the sheepeople with!

no life's picture

Most brains think in small increments. They don't want to be too audacious. It's human nature. Ocassionally somebody comes along steeped in the eccentric or grandiose but still able to knock out the smaller steps and they wind up leaps ahead of the rest. The only question is whether they seek to improve things or do they just want to manipulate it all for their own immediate personal gain. Such an individual is likely hanging around zerohedge with an odd-ball moniker and a picture of gigantic naked breasts in their avatar.

JW n FL's picture

O.T. Marine Murdered by SWAT!


1. A Marine who just served 2 tours in Iraq would hear Police Beating on the Door! Yelling Search Warrant!

2. When the Marines Wife wakes up to someone outside the window making noise.. to wake her Husband.. and the SWAT Team is already in Place in the House.. In place enough to get off 70 rounds in 7 seconds.. so 7 shooters in place with a clear shot.. not Lined up but spaced out enough to fire.. ONCE AGAIN! In Place in the house.. to Shoot! while someone wakes the family outside the window..

3. I know most of us are not hispanic and we would like to think that, thats a difference that will matter in the end.. quit lying to yourselves!


A Fucking Marine was Harmed! Killed!! by Lying Fucking Piggs!!!


If we dont start making noise about this kind of stuff, if we dont stand for something.. we will be reaping what we have sown. We should be a voice, a real, truthful, no spin, rational, extremely loud.. Voice! to be heard! we should be educating the sheep to what kind of consumer lifestyle they have to look forward too.


No Matter the spin that Russian News puts on this.. the Facts.. of rounds and timing and how he was shot.. does NOT change!


***** "Seventy-one rounds of ammo were unloaded in seven second on Jose Guerena, an ex-Marine who served two tours of Iraq.

The gunfire wasn’t unleashed by insurgents from opposing military forces, however. The 60 bullets that entered Guerena’s body were fired by an Arizona SWAT team as Guerena’s wife Vanessa and their four-year-old son Juan hid in a closet at around 9:30 am on a Thursday morning. It happened only earlier this month in their Tuscon, Arizona-area home.

According to police, the Guerena residence was targeted in an investigation surrounding home invasions and drug rip-offs. Police says their house was among those “identified as locations where these activities were being carried out from.” What hard evidence they have for this has not been disclosed.

What we do know, more or less, is that Vanessa heard noises and saw a man outside their window on the morning of May 5. She woke her husband up, who then grabbed a rifle and walked toward the kitchen. There he was shot dozens of times within the mere moments after. Guerena’s possession of the AR-15 was completely legal and it was never fired.

What followed immediately was a poorly-handed 911 call dialed by Mrs. Guerena as she watched her husband grunt on the ground in front of his family, gasping his last breaths of life. She pled with the emergency operators to send help for five minutes while they deemed her “hysterical.” Once they did arrive, it was an hour and 14 minutes before EMTs were allowed access to the wounded Guerena; the SWAT team wouldn’t allow them near." *****



My Tweet from this morning. I am sure lots of you could have worded it better.. but I was pissed, to pissed to really start trying to inform people!

You better shoot first and shoot a LOT! Because YOU! Are Dead! for sure if YOU! Don’t! http://goo.gl/6gBLq

How come Police are protecting the Drug Dealers instead of busting them? http://goo.gl/6gBLq Marine Murdered by Police!


No Knock Warrant, Make Noise Outside so that you get the Person Up and Armed. BANG they are dead! Score 1 for the Good Guys! http://goo.gl/6gBLq


Urban Redneck's picture

Clarence Dupnik, dipshit sheriff who goes on a PR warpath against the press and "uncivil discourse" when a madman gets off over 30 rounds and hits a congresswoman.

Wait a couple months...

Same dipshit sheriff goes on a PR warpath against the press for questioning his sanctioning of a bunch madmen in his employ getting off over 70 rounds and killing a Marine.

Perhaps he should keep his mouth shut and dismantle the SWAT team he brags about. 


topcallingtroll's picture


Nobody died in any of the other raids. Drop your weapon fast if you think it might be a cop.

Granted it looks like the police could have conducted the raid better. They were a bunch of fraidy cats too quick on the trigger when everyone could have pulled back and talked it out.

It does look like he and his gang were guilty of home invasions and even his wife didnt know. It was an extremely technologically sophisticated operation.

Keri at Bankster Report's picture

You don't know that he was in a gang of home invaders: that is what this sherriff, who has already lied, is telling you and you believe it.  The sherriff also said that the Marine fired the first shot, so then they opened fire.  But he had to retract that because it was a LIE and the safety was on the whole time.  See how that works?  Police can lie, but if we lie, we go to jail.  They even brag about it.

Too many police have been told that they can bascially do whatever they want, and if you get in their way, they will kill you. They lie constantly and are literally encouraged to lie: they take classes on how to lie.  Yet if you lie to them?  The good ones who reject this nonsense as wrong and immoral and unconstitutional are held down, and certainly kept out of SWAT teams and commando dress-up hit-squad groups.  The police themselves need to stand up this nonsence and stop just taking orders.

Also, about your line "drop your weapon fast if you think it might be a cop." Unforuntately, that's not enough, either: there are plenty of cases of police shooting totally unarmed people; you are a lot more likely to get shot by a police officer than a police officer is likely to get shot himself.  You could be like this guy:


In Utah, they killed a guy with a golf club.  In Seattle, a cop sees a homeless guy minding his own business and SIX SECONDS later, put 5 shots into the man and kills him for no reason.  Then in the last one speaks for itself.

This could be any one of us.  This is unacceptable.  These people get promoted, and their departments get more weaponized and more authoritative.  They are acting as if they can do whatever they want because we are acting as if they can.

That police officer in Seattle killed a man for no reason and what happens?  NOTHING.  He's still out there: repeat: the guys kills a homeless man for no reason and he's still working as a "peace" officier.  They don't even fire him, and the certainly don't charge him.  Funny how that works, the police policing the police.  Seattle people, so you'd better watch it if you cross the street in from of his car.  You might just be get shot five times.

So, in a nutshell, I don't just "believe" whatever the police tell me, especially when they raid someone's house and KILL HIM.  There are a lot of people who have not yet had an expereince with exactly how corrupt and powerful the police are: I hope they figure it out before they have to learn the hard way.

Pegasus Muse's picture

Much more of this and homeowners will shoot trespassers first and ask questions later.  In other words, operate just like this trigger-happy apparently SWAT team did.  

Overplay your hand and there are guys who have lived through some of this that will call you on it: 


Libertarian777's picture

now now, the Indiana Supreme Court has just ruled that you may not repel home invaders, even if the search is illegal.


remember, they're from the government, and they're here to help

mynhair's picture

Regarding point #7, GS is saying the herd mentality works in up markets, but the exits get jammed on the way down.   Absolutely brilliant analysis.

JW n FL's picture

neutral, balanced fundementals keep you well clear of that problem.

topcallingtroll's picture


For a radical populist you seem to know a lot about investment.

dracos_ghost's picture

Yeah, it's like saying that the team that has the most points at the end of a game is usually the winner. The team with the fewer points usually loses.

These GS guys are the best and brightest?!

The fact that the majority of the hedge funds trade the same strategies for the most part begs the question: What is the point of a "Hedge Fund" anymore? Back in the day I guess it could be argued they provided liquidity and primed the market when too much inertia set in. Now, it's a herd running in and out of the pen when one changes direction.

This won't end well.

aminorex's picture

New Madrid fault.  Arkansas is also not a good candidate for secession.  PacNW is less vulnerable to geologic or political catastrophe.