Reuters – Hedge funds tend to concentrate their holdings in small- to medium-cap stocks, which may be one reason such stocks continue to outperform larger companies, a recent Goldman Sachs (GS.N:Quote, Profile, Research) analysis of hedge fund holdings found.
Furthermore, hedge funds tend to favor stocks in sectors including consumer discretionary, materials and information technology and are “dramatically underweight” financial and consumer staple stocks, the analysis found.
The findings, based on quarterly disclosure statements for 550 hedge funds with some $650 billion in equity assets, show that hedge funds are more focused on finding value in smaller companies than mutual funds. And their interest is registering in stock gains for many smaller companies.
Hedge funds, which are private pools of capital that typically use leverage and long-short strategies, “are significantly tilted to smaller companies,” the May 19 Goldman report stated.
It said 42 percent of hedge funds’ aggregate assets were invested in companies with market caps of under $5 billion, compared to mutual funds, which hold less than 20 percent of their assets in such stocks. Furthermore, less than 16 percent of hedge fund holdings are in stocks with $50 billion or more in market values, compared to mutual funds at 30 percent.
