Despite A Brutal 2022, Hedge Funds' Favorite Stocks Are Up 10% This Year‍

The New Year has kicked off with a bang for a group of hedge funds' favorite stocks, as Goldman Sachs reported that a number of them are seeing double-digit returns.

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Based on regulatory filings from the Wall Street bank, which analyzed the holdings of 758 hedge funds at the beginning of 2023, the bank found that they held $2.3 trillion of gross equity positions. Thereafter, Goldman Sachs compiled a basket of the most popular long positions in the hedge fund industry, called "Goldman's Hedge Fund VIP basket," consisting of 50 stocks that are most frequently listed among the top 10 holdings held by hedge funds.

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In 2022, this basket dropped by a whopping 32%, which was the second-worst annual return in its 21-year history, both in absolute terms and compared to the S&P 500 index, Goldman said. In the midst of rising interest rates, growth stocks have been the hardest hit by last year's sell-off.

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A number of hedge fund darlings have rallied more than 10% year to date as technology stocks have recovered from steep losses, the firm said. It is anticipated that the strength of these VIPs will lift the average hedge fund to a return of 3% in early 2023, according to Goldman Sachs.

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A recent note from Ben Snider, equity strategist at Goldman, said in a note that, despite the fact that the majority of the most popular positions have been concentrated in growth stocks and the Information Technology sector for most of the last two years, they have been boons as of late this year as well as a sharp reversal of momentum.

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There has been a record of this basket beating the market in the past, even though it underperformed last year. There have been 59% of quarters in which the VIP basket has outperformed the S&P 500 with an average quarterly excess return of 38 basis points since 2001, according to Goldman Sachs.

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Last quarter, Microsoft and Amazon continued to be the two most popular long positions among hedge funds. During the first half of this year, Microsoft's stock has gained more than 5%, while Amazon's stock has surged by more than 15%.

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After falling out of the top five last quarter for the first time since 2014, Meta has rebounded to number three on the list after making a comeback in the third quarter. Following the company's announcement that revenue for the fourth quarter of 2013 surpassed expectations and that it will buy back $40 billion in stock in the new year, the company's shares have rebounded by 23% in the new year. 

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On the list of VIPs, Activision Blizzard was also included. Earlier in 2022, Microsoft announced that it would acquire Activision for $95 a share in cash, which is about $69 billion at the time, but the deal has since been embroiled in a case filed by U.S. regulators seeking to block the deal.

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In contrast, Goldman says Tesla was completely removed from the list.

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