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Hedge Funds Are Ditching Goldman Sachs Group (GS)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Goldman Sachs Group, Inc. (NYSE:GS) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Goldman Sachs Group, Inc. (NYSE:GS) an excellent stock to buy now? Hedge funds were becoming less hopeful. The number of bullish hedge fund bets were trimmed by 5 in recent months. Our calculations also showed that GS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).Goldman Sachs Group, Inc. (NYSE:GS) was in 69 hedge funds’ portfolios at the end of June. The all time high for this statistics is 78. There were 74 hedge funds in our database with GS holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a gander at the new hedge fund action regarding Goldman Sachs Group, Inc. (NYSE:GS).

How are hedge funds trading Goldman Sachs Group, Inc. (NYSE:GS)?

At Q2’s end, a total of 69 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. By comparison, 61 hedge funds held shares or bullish call options in GS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Eagle Capital Management held the most valuable stake in Goldman Sachs Group, Inc. (NYSE:GS), which was worth $1173 million at the end of the third quarter. On the second spot was Greenhaven Associates which amassed $582.5 million worth of shares. Fisher Asset Management, Citadel Investment Group, and Pzena Investment Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to Goldman Sachs Group, Inc. (NYSE:GS), around 28.39% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, setting aside 12.9 percent of its 13F equity portfolio to GS.

Seeing as Goldman Sachs Group, Inc. (NYSE:GS) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few money managers who sold off their entire stakes heading into Q3. Intriguingly, Warren Buffett’s Berkshire Hathaway sold off the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $296.8 million in stock. Renaissance Technologies, also dropped its stock, about $86.8 million worth. These moves are important to note, as total hedge fund interest dropped by 5 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Goldman Sachs Group, Inc. (NYSE:GS). We will take a look at The Estee Lauder Companies Inc (NYSE:EL), The Blackstone Group Inc. (NYSE:BX), Stryker Corporation (NYSE:SYK), Intuitive Surgical, Inc. (NASDAQ:ISRG), Anthem Inc (NYSE:ANTM), Fiserv, Inc. (NASDAQ:FISV), and Booking Holdings Inc. (NASDAQ:BKNG). This group of stocks’ market caps match GS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EL 46 1197830 2
BX 47 1434341 -2
SYK 50 1257094 2
ISRG 43 1094503 -7
ANTM 69 4103137 -1
FISV 85 4642685 18
BKNG 96 6098595 6
Average 62.3 2832598 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 62.3 hedge funds with bullish positions and the average amount invested in these stocks was $2833 million. That figure was $3543 million in GS’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Intuitive Surgical, Inc. (NASDAQ:ISRG) is the least popular one with only 43 bullish hedge fund positions. Goldman Sachs Group, Inc. (NYSE:GS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GS is 51.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately GS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GS were disappointed as the stock returned 4.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.