As part of his latest weekly report, Goldman's David Kostin breaks down the full array of strategy "baskets" used by hedge funds at this moment to outperform the market in 2014. In a nutshell, the best performing strats right now involve betting on a high vs low tax rate divergence (perhaps because companies facing high tax regimes are soaring on hopes they will engage in a price-boosting tax inversion deal), and shorting BRIC exposure:
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... on betting aggressively against high quality and shorting strong balance sheet names (thanks to the bond bubble which allows the worst of the worst companies to refinance in the current environment) while at the same time betting that companies will engage in aggressive stock buybacks and generate a return to shareholders (via dividends and general total cash):
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... and finally, on once again parking into high hedge fund concentration stocks such as Goldman's Hedge Fund VIP basket, and boosting high concentration positions while shorting names out of hedge fund favor, as well as going long the high sharpe ratio names. Finally, and perhaps surprisingly, going long the most shorted names, a strategy that generated the best returns in 2012 and 2013, has been relatively mute so far in 2014.
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