Facebook, Amazon.com, and other so-called FAANG stocks may have remained the most widely held stocks among hedge funds in the second quarter — but the Standard & Poor’s 500 stocks with the most concentrated ownership among hedge funds are an unlikely collection of consumer discretionary companies in retail and travel, as well as several industrials, according to data from Goldman Sachs.
Many of these stocks were badly beaten down by the pandemic induced market meltdown, but have rebounded sharply since then. And many of them count some of the most high-profile hedge funds among their largest shareholders.
Goldman recently pointed out in a report that since 2001, the strategy of buying the 20 S&P 500 stocks with the most concentrated hedge fund ownership has outperformed the broad index in 61 percent of quarters, with an average quarterly excess return of 155 basis points, or 1.5 percent, per quarter.
Goldman added that these stocks have tended to be mid-caps at the lower end of the S&P 500 capitalization ranking. It noted hedge funds own 17 percent of the market cap of the average constituent in its high-concentration basket. This compares with hedge fund ownership of 4 percent of the average S&P 500 stock and less than 1 percent of the average constituent in Goldman’s low-concentration basket.
[II Deep Dive: It Pays To Invest in Unpopular Hedge Funds]
At the end of June, retailer L Brands had the most hedge fund concentration, accounting for 32 percent of the retailer’s market cap. After suffering a sharp decline in revenues and a loss in the first quarter — when its Victoria's Secret, Bath & Body Works, and PINK stores were forced to shut down due to Covid-19 — the company rebounded sharply in the second quarter. The stock has more than tripled since its late March low.
At the end of the second quarter, its two largest investors were Gabriel Plotkin’s Melvin Capital Management and Stephan Mandel Jr.’s Lone Pine Capital, both of which established their positions in the first quarter, according to regulatory filings. L Brands is also the second-largest long of activist Barington Capital Group.
Online travel agency Expedia Group has the second-highest concentration of hedge fund ownership, accounting for 27 percent of its market cap. Its stock has more than doubled since its March low in anticipation that people will slowly return to traveling.
Melvin is the fifth-largest shareholder, and the stock is its fifth-largest U.S. long position. The hedge fund also had a sizable position in Expedia call options, according to its quarterly 13F filing. D1 Capital Partners is the seventh-largest shareholder, according to its regulatory filing.
Transdigm Group, a maker of aerospace components, has the third-highest concentration of hedge fund ownership. Its stock has also more than doubled since its March low.
Tiger Global Management is among its top-ten holders. The Tiger Management descendant, which has owned the stock since 2016, earlier said the shares were among its biggest winners in 2019.
Rounding out the ranking of the ten stocks with the most hedge fund concentration are Under Armour, Xerox Holdings, Incyte Corp., Tiffany & Co., Hilton Worldwide Holdings, LKG Corp., and Nielsen Holdings.