YWR: Hedge Fund Positioning Review
When you feel lost and need direction, it’s always good to review Hedge Fund positioning.
It’s helpful to identify what hedge funds all agree on.
And then usually doing the opposite.
Interestingly, L/S Equity net’s are not high. Gross is elevated, but not the nets. The ‘alpha’ ideas are working and volatility is low so hedge funds have the sails out. But hedge funds have been disciplined about net exposure. They aren’t chasing this rally.
My read on this is equity hedge funds and Multi-Strat are up 6-8% YTD and thinking:
‘It’s June and we’ve basically made our year. Let’s play it safe, keep the nets low and focus on alpha. Deliver 8-10% by December and get paid. 8-10% is fine. The pension funds will be happy, even if the market is up over 20%. No need to take the extra risk and give it all up. Nobody gets fired for 8-10%. December $’s are real $’s.’
Quant funds are likely to be a lot more exposed, although surprisingly their performance doesn’t seem that different (+6.7% for CTA’s & 9.4% for Quant Macro according to Aurum). When the trend is stable with low volatility, as it is, they mechanically get sucked in.
Which is probably why we see such high S&P futures positioning.
Many of the volatility control indices, a type of quant strategy, are 100% long, except the 5% and 7% volatility strategies, which are 55% and 78% long. They haven’t been completely sucked in yet. In the chart below you see 2017 was notable for getting them all sucked in. Thank you
for the chart and color on these strategies. He tracks them closely.
Top 20 Hedge Fund Positions
When we analyse 310 global hedge funds with Equity positions over $1bn we see the positioning is almost exactly the same month to month. The top positions are all big tech, semis and healthcare.
The full dataset with the Top 20 public equity holdings as of July 14 for all hedge funds is available at the bottom of the post.
If you combine both share classes Alphabet is the most frequently owned stock in hedge fund portfolios (108 funds out of 310 have it as a top 20). Amazon is next at 105. 97 own Microsoft.
Equity funds aren’t really chasing Nvidia. 59 own it. Which is actually down from January.
I’ve seen charts which say hedge funds are underweight ‘tech’, but I think it’s how you define ‘tech’ these days. Google and Meta are now ‘communication services’ companies. Apple is ‘consumer electronics’. When I look at the top positions for the big funds it’s dominated by what I call big cap tech and semis.
Notice JP Morgan, Berkshire Hathaway or Exxon are not in the Top 20.
No gold stocks either.
And remember the high hedge fund gross. This suggest hedge funds could be highly exposed to a style rotation.
Value up and tech down would be death.
The Tesla Squeeze
There is one $800bn tech stock which is conspicuously missing from the Top 20 list.
Tesla.
Seems like Tesla is the only tech stock hedge funds don’t like. Only 19 Hedge Funds own Tesla as a Top 20 position.
Goldman’s prime brokerage data shows Tesla is also a top short position at hedge funds they monitor.
I can easily imagine a tech PM at Balyasny or Millenium thinking Tesla would make a great short leg to offset a huge position in Alphabet (‘I’m getting robotaxis for free’). The risk models would like it too. Two big, liquid high beta tech stocks. ‘Yes, go as massive as you want’.
I am going to work on the model, but I’m already attracted to the pain trade set up with Tesla. Pain for everyone. Both mutual funds and hedge funds.
Top 30 Most Consenus Hedge Funds
Adage and Millennium are always at the top of the list, but Man Numeric is notable for climbing the consensusness leaderboard. In January they were #7, but now they are #2 in the world.
Hudson Bay and Walleye both dropped in the rankings. Probably because they both own Tesla.
Big Tech is the Key to Growing AUM
When we map our Top 20 list against ‘Equity Assets’ there is a positive correlation. The smaller funds go off-piste, the big ones stick to what works, which is big-tech.
Top 40 Non-Consensus Positions
I like to take funds which have 0 positions in the Top 20 and see what they own. We analyse these ‘non-consensus’ funds and see which holdings are most frequent.
It’s mostly biotech. No European banks. No US gas names.
Algoma Steel… also always surprised Shopify isn’t more popular with hedge funds. Maybe because it’s Canadian.
Fund of the Month: Viking Global
I also like to pick an interesting fund each month and go over their holdings. Viking stood out because their top position was Philip Morris. We own BATS in Dirty Divs.
US Bancorp…(like it)…T Mobile… interesting (Untouchable Theme #7). LVS (Own it in the China theme), some life sciences, Freeport (makes sense), MTU Aero (the aerospace theme).
Overall, PM sticks out. 5% yield and it’s working while BATS yields 9% and is also starting to wake up now that the threat of Rishi Sunak ending smoking in the UK is over.
Below is a link to the YWR spreadsheet with the Top 20 disclosed equity positions for over 800 funds.
Feel free to go over the data yourself to see what each fund owns and what sticks out to you.