Managed Money Holding Long Bets on the Leadership

Managed Money Holding Long Bets on the Leadership

$DIA, $SPY, $SOX, $QQQ, $RUTX, $VXX

FLASH: Managed money’s lack of conviction in the Y 2019 stock rally has become notorious, but managers retained faith in the Leadership.

Hedge funds kept equity exposures light in this year’s advance, the relative size of their biggest Long positions remained “extremely elevated,” according to the latest research from Goldman Sachs (NYSE:GS)

That faith was rewarded.

A basket of the long positions most favored by hedge funds. which includes shares of Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Alibaba (NYSE:BABA)- outperformed the S&P 500 through the start of q-2, the bank said in a note.

The research tempers the narrative that funds lacked conviction during this year’s remarkable stock market recovery, they did. But they concentrated in a group of proven winners. It is also a sign that fears about the risk of fast-money crowding may be wide of the mark. Hedge fund ownership has proven a good signal for equity returns over 20 years, regardless of high valuations.

“Rather than signaling ‘over ownership,’ stocks with a large number of hedge fund owners have consistently outperformed peers,” wrote strategists at Goldie. “Surprisingly, this pattern has held even for stocks with elevated multiples relative to their histories.”

In Y 2019, the most popular bets rewarded investors with an 18% return into the start of Q-2, according to Goldman, versus about 15% for the S&P 500 in the same frame.

The list of investments included in the ‘Very Important Positions’ basket includes tech giants like Alphabet (NASDAQ:GOOGL). and Facebook (NASDAQ:FB).

That will ring true with many investors; the latest Bank of America Merrill Lynch fund manager survey showed that being long US tech was the most crowded trade globally.

Managed money did cut its leverage in Q-1, and Short interest on single stocks fell to the lowest since Y 2006, according to Goldman’s note Tuesday. While the most popular Short bets did make money, performance lagged the benchmark index.

The fortunes of active managers as a group appear to be on the up in Y 2019; Bank of America Corp. says they are so far delivering their 2nd-best performance since the 2007-2008 financial crisis.

Stock-pickers are benefiting as single-share correlations are weaker than sector correlations, meaning selecting individual companies matters more than picking segments.

Stocks most beloved by hedge funds outperformed the S&P 500 in 61% of Quarters since Y 2001, posting an average quarterly excess return of 55 basis points, according to the Goldman report.

Tuesday, the major US stock market indexes finished at: DJIA +197.43 at 25877.33, NAS Comp +83.35 at 7785.70, S&P 500 +24.13 at 2864.36

Volume: Trade on the NYSE came in at 734-M/shares exchanged

  • NAS Comp +17.3% YTD
  • Russell 2000 +14.5% YTD
  • S&P 500 +14.3% YTD
  • DJIA +10.9% YTD

HeffX-LTN’s overall technical outlook of the US major stock market indexes is Neutral to Bullish in here.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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