Goldman Sachs’ “Hedge Fund VIP” Stocks Outperform S&P 500—What’s Driving the Gains?

Goldman Sachs' latest analysis reveals that its "Hedge Fund Very Important Positions (VIP)" basket of 50 stocks has delivered a 10% return year-to-date (YTD), significantly outperforming the S&P 500's 4% gain.

This outperformance highlights hedge fund positioning in top-performing tech stocks, particularly Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), and Apple (NASDAQ:AAPL)—six of the famed "Magnificent 7".

With hedge funds trimming some mega-cap tech positions while rotating into new entries like Delta Air Lines (NYSE:DAL), Pfizer (NYSE:PFE), Reddit, and Workday (NASDAQ:WDAY), investors may wonder: Is this trend sustainable, and how can retail investors benefit?

Key Insights from Goldman Sachs' Hedge Fund VIP Report

1. Hedge Funds Still Favor Big Tech, But Are Trimming Some Positions

• Amazon (NASDAQ:AMZN) remains the most widely held stock among hedge funds, with 120 funds listing it as a top-10 holding.
• Meta (NASDAQ:META) and Microsoft (NASDAQ:MSFT) follow, appearing in the top holdings of 80 and 75 hedge funds, respectively.
• Despite the dominance of Magnificent 7 stocks, hedge funds trimmed their net positions in most of these companies, possibly taking profits after a strong 2023 rally.

2. New Stocks on the VIP List: Signs of Rotation?

Thirteen stocks joined the VIP list in Q4 2023, signaling sector diversification beyond tech:

• Delta Air Lines (NYSE:DAL) - Increased investor interest amid rising travel demand.
• Pfizer (NYSE:PFE) - A contrarian healthcare play amid post-pandemic shifts.
• Reddit (pending IPO) - A bet on growing social media engagement.
• Workday (NASDAQ:WDAY) - Strong enterprise software demand drives its inclusion.
• Arthur J Gallagher and Capital One Financial (NYSE:COF) - Added despite hedge funds generally reducing exposure to financial services.

3. The “VIP” List's Historical Outperformance

• Since 2001, Goldman's VIP stocks have beaten the S&P 500 in 60% of quarters.
• The average quarterly excess return stands at 52 basis points, reinforcing the strategy's effectiveness.

Market Implications and Investment Takeaways

For Institutional Investors

• Tech remains dominant but is seeing selective selling. Funds may be shifting into undervalued sectors like airlines, financials, and healthcare.
• Hedge fund positioning is not static—rotation into new growth stories like Reddit and Workday suggests a search for the next wave of high-growth stocks.

For Retail Investors

• Following the VIP basket could provide alpha, given its consistent outperformance of the broader market.
• Sector rotation is evident, meaning opportunities exist beyond just big tech—stocks like Delta and Pfizer could offer upside in a diversified portfolio.
• Investors can track hedge fund sentiment by analyzing Key Metrics (TTM) for a deeper look at fundamental trends.

Final Thoughts: Will Hedge Fund VIP Stocks Keep Outperforming?

With the S&P 500 hovering near all-time highs, hedge fund movements signal a cautious but opportunistic approach—trimming some large-cap tech holdings while diversifying into new growth areas.

As market conditions evolve, tracking fund flows and sector rotations will be key for investors looking to align with hedge fund strategies in 2024.