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The Morning Brief: Why Long-Short Funds Are Leading the Pack

Goldman Sachs Group calculates the funds are up 7 percent for the year through August 14, an estimate based on quarterly 13F holdings.

  • By Stephen Taub

Long-short hedge funds are on track for their best year since 2009. Goldman Sachs Group calculates they are up 7 percent for the year through August 14, an estimate based on quarterly 13F holdings. According to eVestment, long-short equity funds were up 6.55 percent through July, compared to a 5.88 percent in 2016. In its analysis of hedge-fund holdings, Goldman said that long-short funds still rely on a handful of stocks to drive performance, with 68 percent of hedge funds’ long equity assets tied to their top 10 positions. Goldman’s Hedge Fund VIP list — stocks that appear most frequently among the industry’s top 10 holdings — includes popular tech and internet stocks. The most popular stocks among hedge funds are Microsoft, Amazon.com, Alibaba Group Holding, Time Warner, Alphabet, Charter Communications, Microsoft, NXP Semiconductor, Visa and Apple. This group of stocks named in Goldman’s hedge fund VIP list has outperformed the Standard & Poor’s 500 index by 7.25 percentage points this year. Since the second half of 2016, the group has outperformed the benchmark by 19 percentage points. Turnover in the second quarter for this basket of stocks was below the historical average.

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Investors continue to warm up to hedge funds. Investors allocated $7.91 billion to the asset class in July, bringing total inflows for the year to $30.5 billion, according to eVestment. What’s more, this is the fourth straight month that the number of funds with inflows exceeded those with outflows. There’s a total $3.163 trillion invested in hedge funds, just shy of the record $3.168 trillion in May 2015, according to eVestment. Equity hedge funds had the most inflows in July at $4.96 billion, boosting this year’s total to $9.95 billion. Long-short equity funds saw $3.38 billion of inflows last month.

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Pershing Square Holdings is down 6.7 percent this month through August 22. The decline has resulted in 5.8 percent loss for the firm for the year.

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Shares of Buffalo Wild Wings fell 1.9 percent to a new recent low, closing Wednesday at $104.85. The stock is now down about 26 percent from what activist investor Marcato Capital Management paid for the shares in June 2016. Marcato International, the offshore hedge fund headed by Mick McGuire III, fell 2.5 percent in July, cutting its gain for the year to 5 percent. Shares of the casual dining chain dropped more than 15 percent in July.

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Shares of Snap jumped 3.85 percent to close at $15.09. The stock is now up about 20 percent since the second-quarter stock holdings of hedge funds were filed on August 14.

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