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A group of hedge funds’ favorite stocks outperformed the broader market by a mile during this year’s elevated volatility, according to Goldman Sachs. The Wall Street bank analyzed the holdings of 740 hedge funds with $2.2 trillion of gross equity positions at the start of 2023, based on regulatory filings. It then compiled a basket of the most popular long positions, dubbed Goldman’s “Hedge Fund VIP basket,” consisting of 50 stocks that most frequently appear among the largest 10 holdings of hedge funds. This basket has returned 14% year to date, beating the S & P 500 by 10 percentage points, Goldman said. These popular long positions also outperformed concentrated short bets in nearly every sector, the firm said. Hedge funds’ darlings have a long track record of beating the market, outperforming the S & P 500 in 58% of quarters since 2001 with an average quarterly excess return of 37 basis points, Goldman said. However, the VIP suffered a record stretch of underperformance during 2021 and 2022 as growth stocks bore the brunt of the sell-off amid rising interest rates. The top four most popular stocks among hedge funds remained the same at the end of March — Microsoft , Amazon , Meta and Alphabet . These Big Tech names staged a fierce comeback this year as investors rotated back into their favorite growth darlings. Goldman’s VIP basket also had a slew of new constituents, including many internet and software names. Hedge funds added conviction bets on New Relic, GoDaddy , Take-Two Interactive Software and Datadog last quarter, according to Goldman. Many hedge funds also bought into JPMorgan and First Citizens BancShares in the first quarter during the banking crisis. These two banks were tied to purchasing parts of failed institutions in deals that were orchestrated by the Federal Deposit Insurance Corporation. JPMorgan is getting all of First Republic Bank’s deposits and a “substantial majority of assets” after the regional bank’s collapse, while First Citizens bought a large portion of Silicon Valley Bank assets .
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