Goldman Sachs publishes a quarterly report based on 13F filings. This is a comprehensive report that takes time to prepare. The data team at Insider Monkey finished processing 13F filings and we had some time on our hands. So, we decided not to wait for Goldman Sachs to publish its report. After all, its methodology is pretty straightforward. Goldman’s hedge fund VIP List “contains the 50 stocks that appear most frequently among the top 10 holdings of fundamentally-driven hedge fund portfolios.” Insider Monkey is probably more selective in its hedge fund list but it is very likely that at least 90% of the hedge funds are in the same list. Identifying the top 10 holdings of a hedge fund is a no-brainer. We considered only top 10 stock holdings of each hedge fund and excluded options or convertible notes positions.
We also noticed that focusing on the top 10 positions of a hedge fund is quite arbitrary. Does a hedge fund really have 10 great ideas every quarter? Our experience shows that a good hedge fund can come up with 2-3 good ideas every year. So, we decided to compile other VIP Stock Lists that are based on each hedge fund’s top 5, top 3, top 2, and top holdings. If the same names consistently come up in our list, then we can eliminate the arbitrariness of the “top 10” positions.
We didn’t have time to conduct back tests on these VIP Lists. Goldman claims that its VIP list managed to outperform the market by about 3 percentage points per year between 2001 and 2010. We think this number could be improved by restricting the list to the top 2-3 positions of hedge funds.
This article has 5 tables. The first table is an approximation for Goldman’s VIP List. Actavis plc (NYSE:ACT), Apple Inc. (NASDAQ:AAPL), and Allergan, Inc. (NYSE:AGN) are the top three stocks. We also compiled the list of 10 most popular stocks among hedge funds, but Allergan wasn’t in the top 3 in that list. Goldman’s VIP List is more similar to our billionaires’ top stocks list. Facebook ranks number 4 in Goldman’s list whereas it wasn’t among the top 10 in the billionaires’ list. This indicates that we get a slightly different list every time we use a slightly different criteria. One interesting stock that showed up in Goldman’s list is Covidien plc (NYSE:COV). It isn’t one of the top 30 stocks among all hedge funds (no restrictions), yet it shows up in this list. This means hedge funds are more likely to place a large bet on Covidien than a small one.
[table]
Company Name , Ticker , Top 10 Holding , Value (x1000)
Actavis Inc. , ACT , 57 , 9325351
Apple Inc. , AAPL , 52 , 16106272
Allergan Inc. , AGN , 52 , 15363015
Facebook Inc. , FB , 48 , 4962961
American Airlines Group Inc. , AAL , 45 , 3808322
Citigroup Inc. , C , 45 , 6338888
Covidien plc. , COV , 45 , 9396613
Valeant Pharmaceuticals International Inc. , VRX , 40 , 11092766
Baidu Inc. , BIDU , 38 , 5378019
Ally Financial Inc. , ALLY , 37 , 4710267
Liberty Global plc , LBTYK , 37 , 7204701
Microsoft Corporation , MSFT , 36 , 13387143
American International Group Inc. , AIG , 35 , 7982485
Micron Technology Inc. , MU , 35 , 4975580
Time Warner Cable Inc , TWC , 34 , 6805400
Delta Air Lines Inc. , DAL , 31 , 4189120
Alibaba Group Holding Limited , BABA , 29 , 4543248
Yahoo! Inc. , YHOO , 29 , 3859147
Air Products and Chemicals Inc. , APD , 28 , 7254865
Liberty Interactive Corporation , QVCA , 28 , 1866281
DIRECTV , DTV , 27 , 8551520
General Motors Company , GM , 27 , 1833335
Cheniere Energy Inc. , LNG , 27 , 5232694
Charter Communications Inc. , CHTR , 26 , 4183112
Wells Fargo & Company , WFC , 26 , 31227350
Berkshire Hathaway Inc. , BRK-B , 25 , 18250347
Gilead Sciences Inc. , GILD , 25 , 2025365
Google Inc. , GOOG , 24 , 1719116
Northstar Realty Finance Corp. , NRF , 23 , 870417
Bank of America Corporation , BAC , 22 , 3501114
eBay Inc. , EBAY , 22 , 8125003
Google Inc. , GOOGL , 22 , 1393933
Mastercard Incorporated , MA , 22 , 5307368
NorthStar Asset Management Group Inc. , NSAM , 22 , 1108685
SunEdison Inc. , SUNE , 22 , 2047856
Dollar General Corporation , DG , 21 , 4248491
DISH Network Corporation , DISH , 20 , 1229867
Constellation Brands Inc , STZ , 20 , 2403496
Tribune Media Company , TRCO , 20 , 2701249
Cubist Pharmaceuticals Inc. , CBST , 19 , 1818658
Twenty-First Century Fox Inc. , FOXA , 19 , 3987785
CBS Corporation , CBS , 18 , 3005426
Hertz Global Holdings Inc , HTZ , 18 , 4265268
Liberty Global plc , LBTYA , 18 , 801513
Macquarie Infrastructure Company LLC , MIC , 18 , 1265133
The Priceline Group Inc. , PCLN , 18 , 3357516
Teva Pharmaceutical Industries Limited , TEVA , 18 , 2397804
Visteon Corporation , VC , 18 , 998704
Brookdale Senior Living Inc. , BKD , 17 , 1084378
EMC Corporation , EMC , 17 , 2683759
Pfizer Inc. , PFE , 17 , 2712800
[/table]
The list doesn’t change much when we restrict our list to only the top 5 stock positions in each hedge fund’s 13F portfolio. Here is the list:
[table]
Company Name , Ticker , Top 10 Holding , Value (x1000)
Allergan Inc. , AGN , 35 , 14410170
Apple Inc. , AAPL , 33 , 15053509
Actavis Inc. , ACT , 33 , 6458616
Covidien plc. , COV , 33 , 7623625
Facebook Inc. , FB , 31 , 3347516
Valeant Pharmaceuticals International Inc. , VRX , 30 , 10153485
Citigroup Inc. , C , 26 , 5033883
Ally Financial Inc. , ALLY , 25 , 4017868
Micron Technology Inc. , MU , 24 , 3163889
Microsoft Corporation , MSFT , 23 , 10970403
Baidu Inc. , BIDU , 21 , 4594884
General Motors Company , GM , 21 , 1674234
Liberty Global plc , LBTYK , 21 , 4599286
American Airlines Group Inc. , AAL , 20 , 2159987
DIRECTV , DTV , 20 , 4459773
Time Warner Cable Inc , TWC , 20 , 4769036
Yahoo! Inc. , YHOO , 19 , 3476189
Berkshire Hathaway Inc. , BRK-B , 18 , 17665116
Delta Air Lines Inc. , DAL , 18 , 3235339
Liberty Interactive Corporation , QVCA , 18 , 1429822
American International Group Inc. , AIG , 17 , 6210290
Alibaba Group Holding Limited , BABA , 17 , 3849114
Charter Communications Inc. , CHTR , 16 , 3048596
Mastercard Incorporated , MA , 16 , 4710505
Gilead Sciences Inc. , GILD , 15 , 1772192
Assured Guaranty Ltd. , AGO , 14 , 601568
Cheniere Energy Inc. , LNG , 14 , 3124579
Macquarie Infrastructure Company LLC , MIC , 14 , 1103629
Constellation Brands Inc , STZ , 14 , 2080787
Air Products and Chemicals Inc. , APD , 13 , 4797343
DISH Network Corporation , DISH , 13 , 857495
NorthStar Asset Management Group Inc. , NSAM , 13 , 821753
SunEdison Inc. , SUNE , 13 , 1136256
Cubist Pharmaceuticals Inc. , CBST , 12 , 969161
eBay Inc. , EBAY , 12 , 6027842
Google Inc. , GOOGL , 12 , 563471
Northstar Realty Finance Corp. , NRF , 12 , 511270
Pfizer Inc. , PFE , 12 , 1181525
Bank of America Corporation , BAC , 11 , 3029401
Visteon Corporation , VC , 11 , 652130
Wells Fargo & Company , WFC , 11 , 27565984
Twenty-First Century Fox Inc. , FOXA , 10 , 1659737
Google Inc. , GOOG , 10 , 773669
Oracle Corporation , ORCL , 10 , 7417319
Teva Pharmaceutical Industries Limited , TEVA , 10 , 1925489
Tribune Media Company , TRCO , 10 , 2144037
TRW Automotive Holdings Corporation , TRW , 10 , 892333
American Capital Ltd. , ACAS , 9 , 757296
Brookdale Senior Living Inc. , BKD , 9 , 683018
CBS Corporation , CBS , 9 , 2346703
[/table]
When we get more restrictive, things got a little bit more interesting. Covidien climbed to the fourth spot and Alibaba Group Holding Ltd (NYSE:BABA) also got more popular. Interestingly, both Allergan and Apple are still number 1 and number 2. Here is the top 50 stocks that are among the top 3 stock positions in hedge funds’ portfolio:
[table]
Company Name , Ticker , Top 3 Holding , Value (x1000)
Allergan Inc. , AGN , 28 , 13706403
Apple Inc. , AAPL , 24 , 14087434
Valeant Pharmaceuticals International Inc. , VRX , 24 , 8472955
Covidien plc. , COV , 24 , 5617672
Actavis Inc. , ACT , 22 , 3442602
Facebook Inc. , FB , 18 , 1238437
American Airlines Group Inc. , AAL , 17 , 2139808
Berkshire Hathaway Inc. , BRK-B , 15 , 16915924
Liberty Global plc , LBTYK , 15 , 3680170
Delta Air Lines Inc. , DAL , 15 , 2730258
DIRECTV , DTV , 14 , 3991066
Alibaba Group Holding Limited , BABA , 14 , 3808866
Micron Technology Inc. , MU , 14 , 2600864
Citigroup Inc. , C , 14 , 2296119
Baidu Inc. , BIDU , 13 , 3612598
Ally Financial Inc. , ALLY , 13 , 2817711
Yahoo! Inc. , YHOO , 13 , 2517234
Microsoft Corporation , MSFT , 12 , 6697847
General Motors Company , GM , 12 , 1245366
Macquarie Infrastructure Company LLC , MIC , 12 , 826836
Constellation Brands Inc , STZ , 11 , 1893887
SunEdison Inc. , SUNE , 11 , 1107560
NorthStar Asset Management Group Inc. , NSAM , 11 , 633204
Cheniere Energy Inc. , LNG , 9 , 2587418
Teva Pharmaceutical Industries Limited , TEVA , 9 , 1914562
Google Inc. , GOOG , 9 , 757877
Pfizer Inc. , PFE , 9 , 662963
Liberty Interactive Corporation , QVCA , 9 , 542489
Assured Guaranty Ltd. , AGO , 9 , 417966
DISH Network Corporation , DISH , 9 , 297729
Oracle Corporation , ORCL , 8 , 5628113
Time Warner Cable Inc , TWC , 8 , 4180386
Mastercard Incorporated , MA , 8 , 4166112
Bank of America Corporation , BAC , 8 , 2834672
Charter Communications Inc. , CHTR , 8 , 2243436
Spirit Aerosystems Holdings Inc. , SPR , 8 , 2071279
Cubist Pharmaceuticals Inc. , CBST , 8 , 682749
Google Inc. , GOOGL , 8 , 465419
Wells Fargo & Company , WFC , 7 , 26538770
American International Group Inc. , AIG , 7 , 4655308
Williams Companies Inc. (The) , WMB , 7 , 3518578
Comcast Corporation , CMCSA , 7 , 2421476
Signet Jewelers Limited , SIG , 7 , 1596035
Twenty-First Century Fox Inc. , FOXA , 7 , 1498706
Gilead Sciences Inc. , GILD , 7 , 1194108
FleetCor Technologies Inc. , FLT , 7 , 899484
Visteon Corporation , VC , 7 , 452207
Northstar Realty Finance Corp. , NRF , 7 , 187412
Air Products and Chemicals Inc. , APD , 6 , 4158093
Walgreens Boots Alliance Inc. , WBA , 6 , 3165917
[/table]
In the following table we restricted our list to the top 2 stock ideas of hedge funds. We think this list makes more sense because these stocks are more likely to be the best ideas of hedge funds. Other than the obvious merger arbitrage related plays, three stocks attracted our attention in this list. First, Apple is the most popular stock. Twenty-two hedge funds have Apple as their #1 or #2 position. That’s a huge vote of confidence. The other stock is Yahoo! Inc. (NASDAQ:YHOO), which is now one of the top 10 stocks. Yahoo also ranks higher than Alibaba. We don’t have any positions in either stock but we believe buying Yahoo is better than investing directly in BABA. Here is the list:
[table]
Company Name , Ticker , Top 2 Holding , Value (x1000)
Apple Inc. , AAPL , 22 , 12658141
Allergan Inc. , AGN , 20 , 12236195
Covidien plc. , COV , 18 , 4546456
Actavis Inc. , ACT , 16 , 3078718
Valeant Pharmaceuticals International Inc. , VRX , 14 , 5848431
Liberty Global plc , LBTYK , 13 , 2572827
Berkshire Hathaway Inc. , BRK-B , 12 , 15277954
American Airlines Group Inc. , AAL , 12 , 2013716
Ally Financial Inc. , ALLY , 11 , 2685155
Yahoo! Inc. , YHOO , 11 , 2089587
Delta Air Lines Inc. , DAL , 11 , 1311821
Macquarie Infrastructure Company LLC , MIC , 10 , 777544
Facebook Inc. , FB , 10 , 382359
Microsoft Corporation , MSFT , 9 , 5987292
Alibaba Group Holding Limited , BABA , 9 , 3017700
Baidu Inc. , BIDU , 9 , 2722915
Micron Technology Inc. , MU , 9 , 1719056
Citigroup Inc. , C , 9 , 1625949
Constellation Brands Inc , STZ , 9 , 1344996
DIRECTV , DTV , 8 , 2900968
Teva Pharmaceutical Industries Limited , TEVA , 8 , 1635065
General Motors Company , GM , 8 , 844649
Google Inc. , GOOG , 8 , 749718
Assured Guaranty Ltd. , AGO , 8 , 327585
SunEdison Inc. , SUNE , 7 , 358781
Williams Companies Inc. (The) , WMB , 6 , 3507315
Spirit Aerosystems Holdings Inc. , SPR , 6 , 1980898
Cheniere Energy Inc. , LNG , 6 , 1779608
Sealed Air Corporation , SEE , 6 , 965128
FleetCor Technologies Inc. , FLT , 6 , 780516
Liberty Interactive Corporation , QVCA , 6 , 464620
Visteon Corporation , VC , 6 , 401537
Wells Fargo & Company , WFC , 5 , 26266208
Tribune Media Company , TRCO , 5 , 1872661
Loral Space and Communications Inc. , LORL , 5 , 1018619
United Therapeutics Corporation , UTHR , 5 , 805727
SanDisk Corporation , SNDK , 5 , 772054
Gilead Sciences Inc. , GILD , 5 , 726917
Pfizer Inc. , PFE , 5 , 453656
Google Inc. , GOOGL , 5 , 341874
DISH Network Corporation , DISH , 5 , 237136
Northstar Realty Finance Corp. , NRF , 5 , 159799
NorthStar Asset Management Group Inc. , NSAM , 5 , 113272
Oracle Corporation , ORCL , 4 , 4437517
Mastercard Incorporated , MA , 4 , 3263741
Walgreens Boots Alliance Inc. , WBA , 4 , 2792708
Time Warner Cable Inc , TWC , 4 , 2589684
Bank of America Corporation , BAC , 4 , 2531060
Comcast Corporation , CMCSA , 4 , 2164327
Charter Communications Inc. , CHTR , 4 , 1816423
[/table]
Here is the final table. These are the most popular #1 stock picks of nearly 750 equity hedge funds. You probably guessed it right, Apple is the most popular #1 stock pick among hedge funds. Another interesting stock among the top 5 is Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B). Let’s take this opportunity and tell you why it isn’t a great idea to buy BRK-B if your goal is to tap into Buffett’s investing wisdom. We usually don’t recommend investing in hedge funds because of their high fees. Our research has shown that investors were able to beat the market by an average of 18 percentage points per year by investing in their top 15 small-cap ideas (read the details).
Warren Buffett doesn’t charge his investors huge fees. His salary is actually microscopic in comparison to what he has done for his investors. The problem with investing in Berkshire is that it hoards a ton of cash and this affects its returns. Last year, the New York Times ran an article bashing Buffett. We explain in this article why the New York Times was wrong about Buffett. In a nutshell, Buffett’s top stock picks actually perform much better than index funds even when you buy them two weeks after the 13F filings. By buying Buffett’s entire 13F portfolio investors could have outperformed the market by 6 percentage points per year between 1999 and 2009.
We haven’t done any back tests based on the following list. Theoretically it should yield much better returns than Goldman’s original 50 VIP Stocks list. For the time being you can use it as a source of ideas for further research. Here is our list:
[table]
Company Name , Ticker , Top 1 Holding , Value (x1000)
Apple Inc. , AAPL , 14 , 3726450
Covidien plc. , COV , 11 , 3363034
Allergan Inc. , AGN , 9 , 8782545
Macquarie Infrastructure Company LLC , MIC , 9 , 739183
Berkshire Hathaway Inc. , BRK-B , 7 , 14320318
Alibaba Group Holding Limited , BABA , 7 , 1965307
American Airlines Group Inc. , AAL , 7 , 1679369
Yahoo! Inc. , YHOO , 7 , 1123661
Actavis Inc. , ACT , 7 , 1047841
Delta Air Lines Inc. , DAL , 7 , 960903
Ally Financial Inc. , ALLY , 6 , 1568308
Citigroup Inc. , C , 6 , 1002658
Baidu Inc. , BIDU , 6 , 996735
Liberty Global plc , LBTYK , 6 , 594587
Valeant Pharmaceuticals International Inc. , VRX , 5 , 1752074
Micron Technology Inc. , MU , 5 , 1408459
Constellation Brands Inc , STZ , 5 , 1123499
Teva Pharmaceutical Industries Limited , TEVA , 5 , 1072717
Visteon Corporation , VC , 5 , 397882
Assured Guaranty Ltd. , AGO , 5 , 225626
Facebook Inc. , FB , 5 , 197173
Microsoft Corporation , MSFT , 4 , 5303508
Spirit Aerosystems Holdings Inc. , SPR , 4 , 1609052
DIRECTV , DTV , 4 , 1487312
Cheniere Energy Inc. , LNG , 4 , 1353960
Biogen Idec Inc. , BIIB , 4 , 792116
Twenty-First Century Fox Inc. , FOXA , 4 , 762739
CF Industries Holdings Inc. , CF , 4 , 442888
Oracle Corporation , ORCL , 3 , 2908142
Time Warner Cable Inc , TWC , 3 , 2578736
Williams Companies Inc. (The) , WMB , 3 , 2522323
Walgreens Boots Alliance Inc. , WBA , 3 , 1349959
Harbinger Group Inc , HRG , 3 , 1172573
Calpine Corporation , CPN , 3 , 853024
Transdigm Group Incorporated , TDG , 3 , 665307
NextEra Energy Inc. , NEE , 3 , 597150
United Technologies Corporation , UTX , 3 , 486096
Pfizer Inc. , PFE , 3 , 350414
United Therapeutics Corporation , UTHR , 3 , 337275
HD Supply Holdings Inc. , HDS , 3 , 242951
American Realty Capital Properties Inc. , ARCP , 3 , 240620
Amicus Therapeutics Inc. , FOLD , 3 , 200835
DISH Network Corporation , DISH , 3 , 196674
Visa Inc. , V , 3 , 179018
Shutterfly Inc. , SFLY , 3 , 154334
SunEdison Inc. , SUNE , 3 , 148303
InterXion Holding N.V. , INXN , 3 , 145723
NorthStar Asset Management Group Inc. , NSAM , 3 , 72198
HCA Holdings Inc. , HCA , 3 , 65991
Wells Fargo & Company , WFC , 2 , 25860212
[/table]