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Hedge Fund Consensus Stocks vs. The Goldman Sachs Group, Inc. (GS) In 2019

Nina Todic

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like The Goldman Sachs Group, Inc. (NYSE:GS).

Is The Goldman Sachs Group, Inc. (NYSE:GS) a buy here? Hedge funds are turning bullish. The number of bullish hedge fund bets advanced by 11 recently. Our calculations also showed that GS currently ranks 30th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). GS was in 72 hedge funds' portfolios at the end of the third quarter of 2019. There were 61 hedge funds in our database with GS positions at the end of the previous quarter.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_315178" align="aligncenter" width="450"] Warren Buffett of Berkshire Hathaway[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to review the key hedge fund action encompassing The Goldman Sachs Group, Inc. (NYSE:GS).

Hedge fund activity in The Goldman Sachs Group, Inc. (NYSE:GS)

At the end of the third quarter, a total of 72 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 57 hedge funds with a bullish position in GS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Berkshire Hathaway held the most valuable stake in The Goldman Sachs Group, Inc. (NYSE:GS), which was worth $3803.4 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $1448.4 million worth of shares. Greenhaven Associates, 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 Okumus Fund Management allocated the biggest weight to The Goldman Sachs Group, Inc. (NYSE:GS), around 18.54% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, designating 14.02 percent of its 13F equity portfolio to GS.

Now, key hedge funds have jumped into The Goldman Sachs Group, Inc. (NYSE:GS) headfirst. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, assembled the biggest position in The Goldman Sachs Group, Inc. (NYSE:GS). Senator Investment Group had $114 million invested in the company at the end of the quarter. James Parsons's Junto Capital Management also made a $22.4 million investment in the stock during the quarter. The other funds with brand new GS positions are Michael Gelband's ExodusPoint Capital, Christopher James's Partner Fund Management, and Alex Snow's Lansdowne Partners.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Goldman Sachs Group, Inc. (NYSE:GS) but similarly valued. We will take a look at Chubb Limited (NYSE:CB), Sony Corporation (NYSE:SNE), Ambev SA (NYSE:ABEV), and The Estee Lauder Companies Inc (NYSE:EL). This group of stocks' market values are similar to GS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CB,26,612921,1 SNE,26,783005,-9 ABEV,18,384746,2 EL,43,1850698,7 Average,28.25,907843,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $908 million. That figure was $8237 million in GS's case. The Estee Lauder Companies Inc (NYSE:EL) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 18 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on GS, though not to the same extent, as the stock returned 40% during the same period and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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