Let’s face it. Hedge funds are boring.
Forget their reputation as savvy, opportunistic traders and deft short sellers. The reality is hedge funds crowd into the same stocks that barely change from quarter to quarter to quarter. And they rarely dump their favorite stocks.
These are some of the takeaways from the recently filed 13F documents detailing the U.S. long equity portfolios of hedge funds.
For example, in the second quarter, the average hedge fund turned over just 26 percent of its equity positions, according to a report from Goldman Sachs Group. Turnover among the largest quartile of positions was just 15 percent, Goldman found in its analysis.
What’s more, group think doesn’t seem to change much.
According to Novus, the 15 most popular stocks at the end of the second quarter were the same 15 at the end of the previous quarter. The top five also remained the same: Microsoft Corp., Facebook, Amazon.com, and each of the two classes of Alphabet’s stock.
Most of the changes to the most popular stocks held by hedge funds were subtle in the second quarter.
Interestingly, 10 of the top 15 stocks attracted more new investors than those that fully exited them. However, just two of the top 15 holdings experienced a net increase in hedge fund support, counting new entrants, full exits, and the increases as well as decreases in existing stakes.
For example, e-commerce giant Amazon.com, the third most popular stock among hedge funds with 251 shareholders, saw a net increase of two investors. Plus, six more hedge funds added to their stakes than the number of those that reduced them.
The other company that saw a net increase in total hedge fund support was Chinese e-commerce giant Alibaba Group Holding. Alibaba is now the eleventh-most-popular hedge fund stock after picking up a net six investors. Also, 47 more investors boosted their stakes than the number of those that trimmed them.
Walt Disney Co. is among the hottest stocks held by hedge funds, according to Novus.
In the second quarter, the company attracted 47 new investors while 36 bailed. As a result, Disney now has 200 total hedge fund investors, making it the sixth-most-popular hedge fund stock. At the end of last year, the company had just 150 hedge fund investors.
Of course, a lot of sentiment changed after Disney last year agreed to buy most of 21st Century Fox, a deal that was completed in March. In June, we reported that Light Street Capital established “a significant position” in Disney through common equity and options. Light Street disclosed the position its first-quarter letter to investors, citing the company’s recent introduction of its Disney+ streaming service as a major positive development.
Software and cloud giant Microsoft ranked as the most popular hedge fund stock at the end of the second quarter, a position it has held since the third quarter of 2018, according to Novus.
However, in the second quarter, 11 more hedge funds liquidated their position than the number of those that initiated stakes in the stock, leaving it with 278 hedge fund investors. What’s more, 77 more hedge funds reduced their holdings than those that boosted their existing stakes in Microsoft.
Social media pioneer Facebook, meanwhile, remained the second-most-popular hedge fund stock after attracting a net increase of 14 investors, bringing the total to 259.
