How Goldman Sachs and Other Hedge Fund Darlings Performed in Q2

Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:

“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”

“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.

It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.

The #23 most popular stock among the 743 hedge funds tracked by Insider Monkey was Goldman Sachs Group, Inc. (NYSE:GS). Goldman Sachs was the third most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).

We have to warn you against indiscriminately imitating hedge funds’ all stock picks. Hedge funds’ top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds’ top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund’s 35th best idea doesn’t give you the same return as investing in a hedge fund’s best idea.

Warren Buffett

Warren Buffett

Let’s review the key hedge fund action encompassing Goldman Sachs Group, Inc. (NYSE:GS).

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

Heading into the second quarter of 2019, a total of 76 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in GS over the last 15 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).


Among these funds, Berkshire Hathaway held the most valuable stake in Goldman Sachs Group, Inc. (NYSE:GS), which was worth $3523.7 million at the end of the first quarter. On the second spot was Eagle Capital Management which amassed $1192.7 million worth of shares. Moreover, Greenhaven Associates, Citadel Investment Group, and Pzena Investment Management were also bullish on Goldman Sachs Group, Inc. (NYSE:GS), allocating a large percentage of their portfolios to this stock.

Consequently, some big names have jumped into Goldman Sachs Group, Inc. (NYSE:GS) headfirst. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable call position in Goldman Sachs Group, Inc. (NYSE:GS). Laurion Capital Management had $64.6 million invested in the company at the end of the quarter. Steven Tananbaum’s GoldenTree Asset Management also made a $41.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Daniel Lascano’s Lomas Capital Management, and Thomas G. Maheras’s Tegean Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Goldman Sachs Group, Inc. (NYSE:GS) but similarly valued. We will take a look at CVS Caremark Corporation (NYSE:CVS), Automatic Data Processing (NASDAQ:ADP), QUALCOMM, Incorporated (NASDAQ:QCOM), and BlackRock, Inc. (NYSE:BLK). All of these stocks’ market caps match GS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVS 61 908077 -16
ADP 39 2852967 -3
QCOM 45 1905850 -6
BLK 45 753724 9
Average 47.5 1605155 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.5 hedge funds with bullish positions and the average amount invested in these stocks was $1605 million. That figure was $7453 million in GS’s case. CVS Caremark Corporation (NYSE:CVS) is the most popular stock in this table. On the other hand Automatic Data Processing (NASDAQ:ADP) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks Goldman Sachs Group, Inc. (NYSE:GS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Hedge funds were also right about betting on GS as the stock returned 6.6% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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