Goldman Sachs publishes a quarterly report based on 13F filings. This is a comprehensive report that takes time to prepare. The data team at Insider Monkey finished processing 13F filings and we had some time on our hands. So, we decided not to wait for Goldman Sachs to publish its report. After all, its methodology is pretty straightforward. Goldman’s hedge fund VIP List “contains the 50 stocks that appear most frequently among the top 10 holdings of fundamentally-driven hedge fund portfolios.” Insider Monkey is probably more selective in its hedge fund list but it is very likely that at least 90% of the hedge funds are in the same list. Identifying the top 10 holdings of a hedge fund is a no-brainer. We considered only top 10 stock holdings of each hedge fund and excluded options or convertible notes positions.
We also noticed that focusing on the top 10 positions of a hedge fund is quite arbitrary. Does a hedge fund really have 10 great ideas every quarter? Our experience shows that a good hedge fund can come up with 2-3 good ideas every year. So, we decided to compile other VIP Stock Lists that are based on each hedge fund’s top 5, top 3, top 2, and top holdings. If the same names consistently come up in our list, then we can eliminate the arbitrariness of the “top 10″ positions.
We didn’t have time to conduct back tests on these VIP Lists. Goldman claims that its VIP list managed to outperform the market by about 3 percentage points per year between 2001 and 2010. We think this number could be improved by restricting the list to the top 2-3 positions of hedge funds.
This article has 5 tables. The first table is an approximation for Goldman’s VIP List. Actavis plc (NYSE:ACT), Apple Inc. (NASDAQ:AAPL), and Allergan, Inc. (NYSE:AGN) are the top three stocks. We also compiled the list of 10 most popular stocks among hedge funds, but Allergan wasn’t in the top 3 in that list. Goldman’s VIP List is more similar to our billionaires’ top stocks list. Facebook ranks number 4 in Goldman’s list whereas it wasn’t among the top 10 in the billionaires’ list. This indicates that we get a slightly different list every time we use a slightly different criteria. One interesting stock that showed up in Goldman’s list is Covidien plc (NYSE:COV). It isn’t one of the top 30 stocks among all hedge funds (no restrictions), yet it shows up in this list. This means hedge funds are more likely to place a large bet on Covidien than a small one.
