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Hedge funds had piled into Facebook stock before it tanked

A bunch of hedge funds likely got hosed on their investment in Facebook (FB) as the social network plunged following its disappointing earnings report.

Facebook’s stock dropped about 19% and shed around $120 billion in market cap after investors were spooked by slower-than-expected user growth and lower revenue guidance for the third and fourth quarters.

REUTERS/Regis Duvignau/File Photo

Facebook is the most popular stock held by U.S. equity hedge funds. According to Goldman Sachs, 222 hedge funds, or about 26% of the population sample the bank tracks, owned Facebook at the end of the first quarter.

“The average weight of FB in those portfolios was 4%. In addition, 97 hedge funds owning a total of $215 billion of equity assets held FB as a top 10 portfolio position, making it the top stock in our hedge fund VIP basket (ticker: GSTHHVIP). The equal-weighted basket lagged the S&P 500 by 20 bp [Thursday],” Goldman analysts wrote.

Facebook shares plunged this week following disappointing earnings results and lower guidance.

While hedge funds were dealt a blow, the mutual funds invested in Facebook may have walked away relatively unscathed.

“The average large-cap mutual fund is underweight FB by 20 bp versus its benchmark. As a result, FB added around 4 bp of alpha to the average large-cap mutual fund today. Large-cap core and large-cap growth funds are underweight FB by 51 bp and 15 bp, respectively,” Goldman wrote.

Hedge funds loaded up on Facebook’s stock during the first quarter even following the Cambridge Analytica scandal. In the first quarter, 53 hedge funds initiated a new position, while 60 hedge funds added to their existing positions, according to Goldman Sachs’s Hedge Fund Trend Monitor. Of those funds, 97 own the stock as a top 10 holding.

Hedge funds of a certain size are required to disclose their long stock holdings in regulatory filings known as 13-Fs. These filings come out 45 days after the end of each quarter. The latest available data is for the first quarter ended March 30. The next batch of filings for the second quarter will be reported in mid-August. Therefore, it’s likely that hedge funds could have changed their positions in recent months.

Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.