Leading Hedge Funds' Best Ideas

Will looking under the hedge fund hood reveal investment gems - or are you driving by looking in the rear view mirror? The 13Fs are arriving and it is that time again - time to look under the hood and see what all the top hedge funds are up to. This post is particularly timely as my truck just blew a gasket and I am now carless.

For background on this approach, check out the following links - Show Me Your Hand - Betting on the Smart Money & How to Really Trade Like Warren Buffett. Also, a new study coming out by Gerald Martin of American University in Washington and John Puthenpurackal of UNLV further validates this approach. The paper on SSRN is "Imitation is the Sincerest Form of Flattery".

Below is a table of updated performance figures for the two strategies we track, followed by links to individual fund holdings and commentary. In our previous backtests, we found that the strategies outperformed the stock indexes by 6-12% per year since 2000 with similar volatility. Is the outperformance a statistical artifact based on survivor bias, or will the strategies hold up out-of-sample?

As you can see, both strategies are outperforming the indexes by quite a wide margin.

Hedge Fund Consensus - Top holdings owned by 15 value hedge funds, ranked by number of funds with the same position. The biggest winners last quarter were Schwab (SCHW) and Google (GOOG) at 33% and 24%, respectively. The biggest losers were Crocs (CROX) and Comcast (CMCSA) at approximately -23%.

Hedge Fund Best Ideas - Top two holdings from each of 10 value hedge funds listed below. The biggest winners were Mastercard (MA) at 38% and Apple (AAPL) at 32%. The biggest losers were Level 3 (LVLT) at -44% and SLM (SLM) at -16%.

Consensus:
(AMX) (5)
(ORCL) (5)
(WMT) (4)
(AXP) (3)
(BNI) (3)
(CVS) (3)
(EMC) (3)
GOOG (3)
(MCO) (3)
(MSFT) (3)

Best Ideas: (Since GOOG is the top holding at Lone Pine and Tiger, I am going to take the next holding at Lone Pine, (QCOM). (CA) also replaces AT since it is going private):
AAPL
(AMP)
(AMT)
AMX
CA
CVS
(DISCA)
(EXH)
GOOG
(HLX)
(KO)
LVLT
MCO
(MGM)
(NWS)
(ODP)
ORCL
(PHG)
QCOM
(WFC)

Click for individual portfolios:

Baupost Group
Blue Ridge Capital
Eminence Capital
Greenlight Capital
Lone Pine Capital
Maverick Capital
Okumus Capital
Private Capital
Tiger Global

Comments

[kurt walter]

Hedge funds? 2 and 20 ... no way. this will be the next area to fall apart.

[Karl Zachar]

Interesting strategy. Just make sure your readers are aware that the 13F's are published approx 45 days after the quarter ends. If you try this copy-cat approach, you risk buying a stock you think your favorite hedgie owns when indeed the hedge fund has actually sold its position in the last 45 days!