The Morning Brief: Hedge Funds Go Big on Favored Stocks

Hedge funds clearly have strong conviction in their favorite stocks. The average equity hedge fund is the most concentrated it has ever been, according to Goldman Sachs’ analysis of regulatory filings disclosing hedge funds’ fourth-quarter equity holdings. The typical fund has 68 percent of its long-equity assets allocated to its 10 largest positions, according to the investment bank’s analysis. This concentration even exceeds the financial crisis highs, the investment bank stresses.

“Hedge fund returns continue to grow more dependent on the performance of a few key stocks,” the Goldman report states. This 68 percent figure compares with just 33 percent for the average large-cap mutual fund, 22 percent for small-cap mutual funds, 18 percent for the Standard & Poor’s 500 stock index and only 2 percent for the Russell 2000 Index.

Meanwhile, turnover among all equity hedge fund portfolios was flat, at 29 percent, after rising 2 percentage points in the third quarter. That broke a six-year streak of consistent declines, according to Goldman. Turnover among the largest quartile of hedge fund positions fell to 15 percent, while turnover among the smallest positions rose slightly, to 44 percent. Turnover was most pronounced among consumer staples and health care stocks, but fell among energy and information technology stocks.

Goldman analyzed 860 hedge funds with $1.8 trillion of gross equity positions ($1.2 trillion long and $650 billion short).


Valiant Capital Partners is one of several investors to participate in the $12.4 billion, Series B financing of Xpressbees, an Indian e-commerce logistics company that was spun out of baby and maternity products retailer FirstCry. The San Francisco hedge fund firm, founded by Chris Hansen, had made an investment in FirstCry in January 2015.


Valiant has long been a big player in India. At the end of the year, its hedge funds had a 39 percent long exposure to the country and nearly an 18 percent short exposure, for a net of 21 percent. This is up from 17.5 percent at the end of the third quarter. The firm recently launched Valiant India Opportunities Offshore, an offshore version of a long-only India fund it established several months ago. Hansen said last year in a letter to investors it only initially planned to offer the fund to current investors “for a small amount of capacity,” citing “the continued inquiries we have received from LPs [limited partners] for a long-only India product.” However, Hansen stressed that the firm had no plans “for any significant outbound marketing or fundraising effort.”


Shares of Etsy surged nearly 7 percent, to close at $7.90, after the online marketplace for handmade goods reported quarterly revenues that slightly exceeded expectations. Its quarterly loss, however, exceeded forecasts. Chase Coleman’s Tiger Global Management is one of the largest investors in the company, which went public April 1 at $16 per share. It closed at $30 on its first day of trading. However, it has been tumbling ever since except for a brief summer rally. At year-end, other top-ten investors included Izzy Englander’s New York-based Millennium Management and Steve Cohen’s Stamford, Connecticut-based family office, Point72 Asset Management.