Nobody has "suffered" more under central planning than billionaire hedge fund managers.
As we have shown year [7]after year [8], the centrally-planned "New Paranormal" has been a total disaster for traditional alpha generation, since with all traditional fundamental relationships flipped upside down thanks to the Fed, the only way to generate outsized returns for one's investors (and one's offshore bank account) is to be massively levered beta, or merely wrong (for a great example of how the bigger the fraud, the higher the stock price goes before it crashes one last time read the case study of Hanergy [9]).
Recall that it was in 2012 when we first showed that the best strategy in this so-called market is to be long the most hated/shorted stocks [10] in hopes of generating a short squeeze among the hedge funds who still expect rationality and fundamentals to eventually prevail over zero-cost money. That "strategy" has outperformed materially since 2012.
To be sure, some hedge fund managers such as Icahn and Ackman have become experts at black (or green) mailing management teams to issue massive amounts of debt and using the proceeds to buy back stock or engage in long-term value destroying roll ups, an extortion strategy known in polite circles as "activism." But the vast majority of hedge fund managers continue to underperform.
And, with over a third of 2015 already in the history books, Goldman reports that "the low dispersion market continues to challenge stock-pickers as the average hedge fund lags the S&P 500 for the seventh straight year (2% vs. 4% YTD)." Cue countless insulted paper traders screaming how the S&P is never the benchmark for any one hedge fund. Which in theory is correct. In practice, however, any hedge fund which has underperformed the S&P for 7 years even if beating some arbitrarily chosen benchmark has likely been redeemed into oblivion long ago.
There is some good news for hedgies: their Sharpe ratio is better than the S&P500, which however is hardly a consideration for anyone who would rather avoid paying 2 and 20 and just buy the SPY: after all in this rigged market, any time even a hint of a correction appears, some Fed president jawbones stocks right up. From Goldman:
The average hedge fund returned 2% YTD through mid-May. The average equity long/short hedge fund has returned 2.8%, lagging the S&P 500 (+3.9%) modestly in absolute return, but with a much higher Sharpe ratio (1.2 vs. 0.5) due to volatility of fund portfolios less than half that of the broad market index. Global macro funds are the exception, posting a poor -0.5% YTD return as the cross-asset trend reversal in interest rates, FX, and equity markets that began in mid-April unwound what had been a strong start to the year for fund performance.
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Ironically, in 2015 even barbaric relics are generating a better return than the smartest money in the room.. with a higher Sharpe.
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And yet, despite their now chronic underperformance, for some increasingly inexplicable reason, everyone still obssesses with hedge fund holdings, even though on average the universe of smart money has shown beyond a doubt it is unable to outperform the market, or rather "market."
So for all those who still care what hedge funds are buying, here from Goldman, is a list of the 50 most widely held hedge fund stocks. No surprise, for the 4th year in a row, AAPL is on top. And yes, despite what pundits say, with 191 holders, there is little "smart money on the sidelines" that isn't already fully allocated to AAPL. Which is also why the Carl Icahns of the world are desperate for AAPL management to buy back as much (and as fast) of these hedge funds' shares as possible [13]. Because without management backstopping the market bid, the Hanergy sub-second collapse case study [9]may quickly come to the US.
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As usual the most valuable information comes not form the most popular stocks, but the most shorted. Because it is here that as is now usual under the New Paranormal - which won't change as long as the Fed and its money distorting peers are around - that the biggest outperformance will come from: by being long the most shorted stocks [10], stocks which will be squeezed until the max pain threshold for most is reached and breached, sending the underlying stock soaring. In fact, the more worthless, fraudulent or corrupt the stock, the higher its price will likely shoot up (once again, see Hanergy [9]).
So without further ado, here is Goldman's list of the 50 stocks that represent the largest hedge fund short positions.
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