Hedge funds have long been known for taking outsized bets on a single stock.
Data recently published by Goldman Sachs in addition to an analysis of 13F filings by Institutional Investor quantify these long-held notions.
According to Goldman’s analysis of quarterly regulatory filings, returns of hedge funds are much more dependent on the performance of a few key stocks than any other group of investors.
It found that the typical hedge fund has an average of 64 percent of its long-equity assets invested in its ten largest positions. This compares with 36 percent for a typical large-cap mutual fund, 18 percent for a small-cap mutual fund, 21 percent for the S&P 500 and just 2 percent for the Russell 2000 index.
This phenomenon can greatly boost — as well as sharply hurt — hedge funds depending upon how well the stocks with their biggest conviction fare. For example, Google and Apple have accounted for nearly 75 percent of the S&P 500’s gains in the third quarter.
This strong performance by the two tech giants has worked out for a number of hedge funds.
Apple and Google happen to be the top-two holdings of Stephen Mandel Jr.’s Lone Pine Capital, accounting for nearly $2 billion of his roughly $18 billion U.S. equity portfolio. At the end of the second quarter, he had only 61 long positions, which worked out to nearly $280 million per issue. This made him the ninth most concentrated hedge fund manager, according to II’s analysis.
Apple and Google are the No. 1 and No. 3 holdings, respectively, of Chase Coleman’s Tiger Global, accounting for about $1.7 billion of his roughly $6.1 billion equity portfolio. His position per stock is closer to $100 million. It is not surprising, then, that Tiger Global has been among the best-performing hedge funds for the past two years in large part due to its aggressive investments in Internet stocks throughout the world, including the U.S.
Predictably, activists like Bill Ackman’s Pershing Square top the list. Their entire strategy is built around being very selective about which stock they invest in and then devoting a lot of resources and time extracting more value from the stock.
Pershing Square held investments in ten different companies at the end of the second quarter in its $7.6 billion U.S. equity portfolio, which works out to $950 million per individual company in which it is invested, according to the 13F.
Icahn Associates, ESL, ValueAct and Trian are other activists that run among the most concentrated portfolios.
R.B. (Biff) Matthews’ Longview Asset Management — ranked second — only owned four stocks at the end of the second quarter despite managing $2.9 billion in its U.S. equity portfolio.
SPO Partners, which has $7 billion invested in 13 different companies, ranks fourth at $539 million.
Below are the ten hedge fund managers who took the largest average stake in each company’s security in which they were invested at the end of the second quarter.
These are the hedge fund managers who have the strongest convictions when they make an investment. (We only count the same company once, even if the 13F contains multiple entries.)
| Hedge Fund Stocks | ||||||
| RANK | FIRM | 2Q EQUITY ASSETS ($B) | NO. OF SECURITIES HELD | ASSETS/SECURITY HELD ($Ms) | ||
| 1 | Pershing Square Capital Management | 7.6 | 8 | 950 | ||
| 1 | Longview Partners | 2.9 | 4 | 725 | ||
| 1 | Icahn Associates | 10.5 | 17 | 618 | ||
| 1 | SPO Partners | 7 | 13 | 539 | ||
| 1 | ESL Investments | 5.7 | 12 | 475 | ||
| 1 | Mason Capital Management | 9.8 | 23 | 426 | ||
| 1 | ValueAct | 6.8 | 16 | 425 | ||
| 1 | Trian Fund Management | 3.1 | 9 | 344 | ||
| 1 | Lone Pine Capital | 17 | 61 | 279 | ||
| 1 | Viking Global Investors | 12.3 | 59 | 208 | ||
