The days just prior to the end of the third quarter now appear like a million years away, and a hundred S&P point away, but they were marked by one notable thing: the price of AAPL hit an all time high just days before the quarter ended. Which is why we read with great interest the quarterly Hedge Fund tracker update by David Kostin, which has been aggregating the popularity of the most prominent hedge fund-beloved names, and which as readers are well aware, has for the past two years been primarily one name: AAPL.
And yet, even with the stock price hitting a lifetime high of over $700/share, which in turn would have assumed even more momentum chasers should have jumped in, June 30 saw the world's most popular hedge fund hotel in history rise by just one tenant for the entire quarter, as the number of Hedge Funds owning the stock, rose to a new record, but by the tiniest of increments: from 230, as of June 30, to 231, on September 30. It is thus safe to say that with barely any incremental holders jumping in when the stock was rising to its all time highs, the recent weakness is only and purely a function of the rising trajectory in hedge fund tenants at Hotel AAPL-fornia finally having been broken, as first one then more holders quietly slip out of the world's biggest hedge fund hotel in the quiet of the night while the receptionist is still taking a bathroom break. The only question is how many. That is an answer we will have in mid-February when the December 13Fs are released.
Total HF holders:
[6]
And the most popular Hedge Fund stocks as of September 30:
[7]
None of the above should come as a surprise to those following the recent violent gyrations in the stock, which always accompany broad capital in and outflows. What should come as a surprise are some of the other findings in this quarter's HF tracker. Such as that even hedge funds are now largely confused, if not clueless, what to invest in, sitting on existing positions without any desire to rotate in or out of positions.
Hedge fund turnover hit record low in 3Q
Turnover of all positions averaged 29% in 3Q, the lowest level in at least 10 years. This trend was also evident in our Hedge Fund VIP list. The top 25 stocks that matter most to hedge funds were unchanged from last quarter.
No surprise then that more and more hedge fund "legends" are just saying to hell with it, and leaving the market in diguise. Fairly soon, only master stock traders on Twitter, and those fast, fast money experts on CNBC, will be the only one making (monopoly) money, as everyone else will be done with the stock market.
And the second, and more troubling conclusion:
Sector positioning presents risk if consumers fall off the ‘fiscal cliff’
Consumer Discretionary remains the sector with the largest aggregate hedge fund allocation and constitutes 24% of our VIP basket. Stocks in highly-weighted consumer subsectors may underperform if rising taxes affect consumer spending, representing risk to fund performance in 2013.
Said otherwise, if the miraculous, neverending purchasing power of the US consumer is indeed nearing an end, and recent economic data certainly point in that direction, then it is not the AAPL sell off that will be hedge fund killer, but the panic that would result from the wholesale dump of anything "consumer discretionary"-related should the fiscal cliff manifest itself in any of its less than agreeable outcomes, and in turn, lead to loss of broad purchasing power by the one driving force accountable for 70% of US GDP.
Of course, if indeed the US consumer is approaching the end of their purchasing capacity, then we have bigger problems to worry about than the fate of a few millionaire hedge fund presidents.