Goldman Sachs says its list of “Hedge Fund VIPs,” or the 50 stocks that rank the most often in the top 10 holdings of notable hedge funds, have outperformed the market in the past 17 years. For its most recent list, Goldman reviewed the top holdings at 830 hedge funds, totaling $2.3 trillion in investments.
Since 2001, Goldman’s VIP list, driven largely by technology stocks, has outperformed the S&P 500 in 62% of quarters, with an average edge of 2.2%. So far this year, Goldman’s list has underperformed the S&P 500 by 1.2%, but hedge funds are expecting stronger returns from those investments by the end of the year, Goldman Sachs strategist Ben Snider said in a note reported by CNBC.
"From an implementation standpoint, the hedge fund VIP list represents a tool for investors seeking to 'follow the smart money' based on 13F filings," Snider wrote.
Here are the top 10 stocks among hedge fund holdings as ranked by Goldman:
This year, investors have been on guard for how evolving regulations regarding privacy may affect this technology stock. Data leaks and fake news have weighed on the stock. Still, nearly 2.5 billion people use its apps, including WhatsApp and Instagram. Facebook shares are down 2.2% year to date, and up 2.8% the past year. Facebook features among the top 10 holdings of 98 hedge funds according to the Goldman analysis.
Amazon’s double-digit gains this year have surprised many who had already pegged the stock as overvalued. Lately, this online retailer has been making a big push into industries like grocery and health care. Amazon shares are up 61% year to date, and up 97.5% the past year. Amazon ranks second on this list as 81 hedge funds have the company shares among their top 10 investment holdings.
Microsoft has held its position as a leader in technology. Now, its cloud computing business, which competes with Amazon and Google, seems poised to thrive. Recently, Microsoft landed a 5-year cloud computing deal with retail giant Walmart. Microsoft shares are up 23.4% year to date, and up 48.6% the past year. Making an appearance in the top 10 holdings for 76 hedge funds, Microsoft comes in at number three on Goldman's VIP list. (See also: Microsoft Stock May Rise 10% on Strong Cloud Sales.)
Google parent Alphabet has been expanding beyond its role as the dominant search engine. It owns more than 200 companies in areas like robotics, telecommunications and broadcasting. Many fans of this stock are drawn to its vast potential with ad revenue. Google shares are up 16.5% year to date, and up 33.3% the past year. Alphabet stock is among the top bets for 54 funds.
Shares of semiconductor stocks have been on a rip amid high demand. Lately, shares of NXP have been battered by escalating trade tensions between the U.S. and China. Qualcomm is trying to take over the company in a $44 billion deal, but so far China has not approved. The stock is down 22.7% year to date, and down 19.4% the past year, yet NXP is a top 10 holding for 47 hedge funds according to Goldman.
Alibaba shares have declined in recent months amid the trade tensions with China, but many analysts say these losses are short-lived. After all, Alibaba dominates e-commerce in China. The stock is up 3.4% year to date and up 5.4% the past year. The Asian tech giant features in top holdings for 43 hedge funds. (See also: Alibaba Faces More Declines as Trade War Heats Up.)
Visa has been reporting steady growth in revenue the past four quarters. Its most recent quarterly revenue was $5.4 billion. Many investors view Visa as a reliable long-term bet among finance stocks. The stock is up 23.4% year to date, and up 36.7% the past year making it a popular top 10 bet for 43 hedge funds. (See also: Visa, Mastercard Seen Rising 12% on Robust Profits.)
8. Aetna Inc. (AET)
Aetna is in the process of merging with CVS in a $69 billion deal that is expected to have a significant impact on the health care industry. The Department of Justice has said it will not challenge the merger. Aetna shares are up 10.3% year to date, and up 28.3% the past year. The health insurer stars as a top 10 investment for 41 hedge funds.
Even amid growing competition in the payments space, PayPal shares have reflected strong interest in the company. PayPal holds a dominant position in processing e-commerce, with about 20% to 30% of all volume globally, with the exception of China. PayPal shares are up 17.9% year to date, and up 46.1% the past year. Forty-one hedge funds have Paypal among the ten largest bets in their portfolios.
Comcast gave up on its bid against Disney for Twenty-First Century Fox. Shares are in the red this year, but Comcast is still the largest cable and broadcasting company in the world, so many hedge funds view this as a safe and reliable investment. Comcast stock is down 11.2% year to date, and down 12.8% the past year. It ranks among the top investment bets for 30 hedge funds. (See also: Comcast Drops Bid for Fox.)