Were Hedge Funds Right About Souring On The Goldman Sachs Group, Inc. (GS)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded The Goldman Sachs Group, Inc. (NYSE:GS) and determine whether the smart money was really smart about this stock.

Is The Goldman Sachs Group, Inc. (NYSE:GS) the right investment to pursue these days? Hedge funds are turning less bullish. The number of bullish hedge fund positions were cut by 1 recently. Our calculations also showed that GS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Einhorn of Greenlight Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the latest hedge fund action surrounding The Goldman Sachs Group, Inc. (NYSE:GS).

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

At the end of the first quarter, a total of 74 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in GS over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Goldman Sachs Group, Inc. (NYSE:GS) was held by Eagle Capital Management, which reported holding $1051.2 million worth of stock at the end of September. It was followed by Greenhaven Associates with a $449.5 million position. Other investors bullish on the company included Berkshire Hathaway, Citadel Investment Group, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to The Goldman Sachs Group, Inc. (NYSE:GS), around 23.82% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, dishing out 16.73 percent of its 13F equity portfolio to GS.

Seeing as The Goldman Sachs Group, Inc. (NYSE:GS) has experienced falling interest from the smart money, it’s easy to see that there is a sect of money managers who were dropping their full holdings heading into Q4. It’s worth mentioning that Charles de Vaulx’s International Value Advisers cut the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $117.9 million in stock, and Doug Silverman and Alexander Klabin’s Senator Investment Group was right behind this move, as the fund dumped about $115 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Goldman Sachs Group, Inc. (NYSE:GS) but similarly valued. These stocks are U.S. Bancorp (NYSE:USB), Morgan Stanley (NYSE:MS), Northrop Grumman Corporation (NYSE:NOC), and VMware, Inc. (NYSE:VMW). All of these stocks’ market caps resemble GS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
USB 51 5625919 1
MS 70 3116102 10
NOC 45 984213 1
VMW 27 420625 -6
Average 48.25 2536715 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.25 hedge funds with bullish positions and the average amount invested in these stocks was $2537 million. That figure was $3085 million in GS’s case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks The Goldman Sachs Group, Inc. (NYSE:GS) is more popular among hedge funds. 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 returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on GS as the stock returned 34.8% so far in Q2 (through June 25th) 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.

Follow Goldman Sachs Group Inc (NYSE:GS)

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