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American International Group Inc (AIG), Microsoft Corporation (MSFT), Citigroup Inc. (C): 3 Compelling Hedge-Fund-Favorite Stocks

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Last week, Goldman Sachs released its quarterly VIP list, showcasing the top 50 stocks that appear most frequently as top-10 holdings among hedge funds. The activity from these fund is quite interesting, and has left numerous trends that could indicate future performance.

A Look At The Top 20

Goldman’s VIP list offers one of the market’s best, most extensive arrays of hedge fund information.

In the report, Goldman states that the average hedge fund has returned gains of 5% YTD, as of May 5, 2013. This compares poorly with the S&P 500’s return of 15% during that same period.

However, for the VIP’s top 20, it is a different story; they have returned a gain of 25% during the same period. You can see those top 20 below; they’re compared against their year-ago counterparts so that we can see how hedge funds have changed their ownership ofcertain stocks.

Q1 2012 Q1 2013
1. Apple Inc. American International Group (NYSE:AIG)
2. Google Google
3. Express Scripts Apple Inc.
4. Microsoft (NASDAQ:MSFT) Citigroup (NYSE:C)
5. Qualcomm General Motors
6. Citigroup Priceline
7. General Motors Virgin Media
8. Priceline News Corp
9. JPMorgan Microsoft
10. Liberty Media Hertz
11. Delphi Automotive JPMorgan
12. BP Anadarko Petroleum
13. Pfizer Pfizer
14. Tyco Qualcomm
15. Visa Charter Communications
16. Yahoo! Hess
17. LyondellBasell CBS
18. Anadarko Petroleum eBay
19. Bank of America Delta Airlines
20. Ford Motor Equinix

The Emergence of AIG

Apple Inc. (NASDAQ:AAPL) held the top spot on this list for three years, until Q4 2012. Since then, American International Group Inc (NYSE:AIG) has come “back from the dead” with authority. In the year prior, AIG wasn’t even in the top 20 – but now it rests atop the list, where it has stayed for two consecutive quarters.

American International Group Inc (NYSE:AIG)

During the last year, American International Group Inc (NYSE:AIGhas rallied to post gains of 60%. While some might think the stock is now expensive, I still like AIG. Trading at just 65% of its book value per share — the stock’s worth if it liquidated all assets and
paid all debts — the company offers investors a measure of safety.

In addition, American International Group Inc (NYSE:AIG)’s underwriting business has improved, and the company has stated its plan to reduce total share count by 30% in the next two years. Given all that, I am not surprised that hedge funds are rushing to buy American International Group Inc (NYSE:AIG), and I’d expect to see it trade considerably higher.

This Tech Stock’s Rank Falls, But Its Shares Rise

Microsoft Corporation (NASDAQ:MSFT) is already included in just about every large cap and technology index in the market. The VIP list above shows that it has fallen out of favor with hedge funds during the last year, from No. 4 to No. 9. Furthermore, Chairman Bill Gates has sold more than $1 billion in shares in 2013 as part of a program to sell his stake, representing most of the insider activity.

Thus, Microsoft Corporation (NASDAQ:MSFT)’s 28% YTD gains have not come from hedge funds, insider buying, or the inclusion to new indexes — but rather the only remaining investment group: retail investors.

With the company’s new Xbox gaming console release and new products set to arrive later this year, it will be interesting to watch Microsoft Corporation (NASDAQ:MSFT) to see whether hedge funds begin to buy this stock. Judging by its current ranking, there is a lot of potential hedge fund money on the table. If in fact hedge funds do begin to buy, it could add another leg to the stock’s rally, making it worth watching.

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