Zero Hedge has a great post on the quarterly Goldman Hedge Fund Trend Monitor. The most interesting aspect of the piece is the relative performance of stocks with the highest concentration of hedge fund holders against the performance of stocks with the lowest concentration of hedge fund holders:
We define “concentration” as the share of market capitalization owned in aggregate by hedge funds. The strategy of buying the 20 most concentrated stocks has a strong track record over more than eight years. Since 2001, the strategy has outperformed the market by an average of 312 bp per quarter (not annualized). The back test suggests that this strategy works in an upward trending market but tends to perform poorly during choppy or flat markets. The stocks in the basket tend to be mid-caps (at the lower end of the S&P 500 capitalization distribution), which have outperformed large-caps from 2004 to 2007, contributing to the attractive back-test results. The baskets are not sector neutral versus the S&P 500.
As you might have guessed, the “least concentrated” basket has outperformed the “most concentrated” portfolio since 2007:
The stocks with the “most concentrated” hedge fund ownership have outperformed the S&P 500 in 2010 ytd by 191 bp (+1.1% vs. -0.8%). The “most concentrated” stocks underperformed steadily for most of 2007 and 2008, but significantly outperformed in 2009. Our “most concentrated” basket outperformed the S&P 500 by 237 bp in 1Q 2010 (+7.7% vs. +5.4%) but lagged by 303 bp in 2Q 2010 (-14.5% vs. -11.4%).
Our “least concentrated” basket has outperformed the S&P 500 in 2010 ytd by 693 bp (+6.1% vs. -0.8%). The “least concentrated” basket outpaced the market by 50 bp in 1Q 2010 (+5.9% vs. +5.4%) and by 440 bp in 2Q (-7.0% vs. -11.4%).
So which stocks are currently in the “least” and “most” concentrated baskets: