In our quest for a portfolio of equities that can provide long term good risk adjusted returns, we have looked at many different ideas. John Maxfield of the Motley Fool taps into Goldman Sachs. Every quarter, Goldman chief U.S. equity strategist David Kostin compiles a list of the 50 stocks that "matter the most" to hedge funds. The list is based on his analysis of 558 hedge funds with $429 billion in equity assets that own between 10 and 200 individual stock positions.
I am looking for filters that help me make good selections, and using what others use is appealing. Of course, Hedge Funds operate very differently to the individual investor but this is a list that is worth measuring.
Funds With Stock as Top 10 Holding
|1||Apple (Nasdaq: AAPL)||105|
|2||Google (Nasdaq: GOOG)||58|
|3||Microsoft (Nasdaq: MSFT)||50|
|4||JPMorgan Chase (NYSE: JPM)||31|
|5||Pfizer (NYSE: PFE)||29|
|6||Qualcomm (Nasdaq: QCOM)||29|
|7||General Motors (NYSE: GM)||28|
|8||LyondellBasell Industries (NYSE: LYB)||24|
|9||Liberty Interactive (Nasdaq: LINTA)||22|
|10||Baidu (Nasdaq: BIDU)||21|
|11||Amazon.com (Nasdaq: AMZN)||20|
|12||Anadarko Petroleum (NYSE: APC)||20|
|13||Las Vegas Sands (NYSE: LVS)||20|
|14||Visa (NYSE: V)||19|
|15||Wells Fargo (NYSE: WFC)||19|
|16||Cisco Systems (Nasdaq: CSCO)||18|
|17||ExxonMobil (NYSE: XOM)||18|
|18||Citigroup (NYSE: C)||17|
|19||Charter Communications (Nasdaq: CHTR)||17|
|20||CIT Group (NYSE: CIT)||17|
Source: Zero Hedge, citing Lionshare via FactSet, IDC, and Goldman Sachs Global ECS Research.
While we won't be trying to replicate a hedge fund environment, this could be an interesting starting point to compare with our dividend bearing ETF portfolio and see if there is anything we can use to build a strong, long term portfolio.
We have been tracking a portfolio of ten equities that were recommended by SeekingAlpha readers and I am going to include this as another comparison.
The dividend bearing ETF portfolio comprises:
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- 20 Stocks Hedge Funds Love -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
The first thing to notice is that the portfolio only has a little more than a year's history. This is bad for any long term investor, but it's interesting in the sense that the portfolio started off in November 2010 with 5% in each equity. This allows us to see what has happened in a little over one year of activity.
|Fund in this portfolio||Percentage|
|AAPL (Apple Inc)||5.94%|
|GOOG (Google Inc)||5.07%|
|MSFT (Microsoft Corporation)||4.97%|
|JPM (JPMorgan Chase & Co)||3.95%|
|PFE (Pfizer Inc)||6.24%|
|GM (General Motors)||2.81%|
|LINTA (Liberty International)||4.74%|
|AMZN (Amazon.com Inc)||5.26%|
|APC (Anadarko Petroleum)||5.52%|
|LVS (Las Vegas Sands Corp.)||4.02%|
|V (Visa Inc)||6.10%|
|WFC (Wells Fargo)||4.59%|
|CSCO (Cisco Systems Inc)||4.38%|
|XOM (Exxon Mobil Corp)||5.57%|
|CIT (CIT Group)||4.00%|
|CHTR (Charter Communication)||7.31%|
|LYB (LyondellBasell Industries)||6.23%|
The mix is interesting -- there is an over representation of banking sector equities, as well as high tech. It is also interesting to note that Apple isn't at the top of the chart. It comes in behind Charter, Visa and Pfizer.
Portfolio Performance Comparison
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||5%||46%||9%||73%||8%||58%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||-0%||-1%||12%||74%||2%||5%|
|20 Stocks Hedge Funds Love||2%||8%|
In the short history that we have, we can see that the risk adjusted returns are proportionally lower than the TAA portfolio -- indicating that this portfolio has volatility.
One Year Chart
Three Year Chart
Five Year Chart
The graphs show a very volatile set of stocks, which may suit active traders, but not the long term investor. In a future article, we will compare this with another list of equities that have been selected by Seekingalpha readers and see how they compare.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.