A large percentage of investors don’t want to beat or be beaten by the market and they invest in low cost S&P 500 index funds. Currently the top 4 holdings of S&P 500 Index funds are mega-cap technology stocks and these stocks account for 12% of these funds.
Insider Monkey is founded to track the moves of smart investors like corporate insiders and hedge fund managers. Unfortunately most hedge fund managers are corrupted by the high management fees as their assets under management swelled. The number of active hedge funds also increased dramatically as several impostors entered the market to take advantage of naive investors who are willing to pay 2% management fees annually.
So, if you were a successful hedge fund manager and managed to attract $15 billion in assets, you could have generated $300 million in management fees annually. If you invested half of your assets in stocks correlated with the broader market, you could have generated another $150-$200 million in “performance fees” in recent years. This approach would have yielded $1 billion in earnings over a couple of years.
We believe hedge funds currently manage too much money and can’t come up with profitable investment ideas that can move the needle for their investors. So, they really have no choice (other than being honest and returning capital to their investors) but to invest in the largest stocks.
We finished compiling the latest 13F filings of about 650 equity hedge funds and identified the three most popular stocks among hedge funds. Here are our results:
1. Facebook (FB): More than 30% of the hedge funds (a total of 180 hedge funds) tracked by Insider Monkey bet on Facebook at the end of March.
2. Microsoft Corp (MSFT): 152 hedge fund managers had the audacity of charging 2 and 20 for buying a stock like Microsoft.
3. Amazon.com (AMZN): 130 hedge fund managers believe Amazon is a great investment idea.
Incidentally, all of these three stocks are among the top 4 heavily weighted positions in low cost index funds. Hedge fund managers know that they can’t really outperform the market by investing in the same stocks, but there is no other way of investing $2 trillion in US equities.
This doesn’t mean that there aren’t any good hedge fund managers who are trying to beat the market by analyzing underfollowed stocks. There are. Our flagship best performing hedge funds strategy managed to beat the market by 30 percentage points over the last 4 years by identifying these hedge funds and investing in their best ideas. Send us an email if you are interested in learning more about this strategy.