Hedge funds' top stock picks haven't been smoked this badly since the financial crisis

Hedge funds’ favourite bets in the stock market have been getting roughed up.

“From August through October, hedge fund favorite stocks posted their worst relative returns outside of 2008,” wrote David Kostin at Goldman Sachs. “Our Hedge Fund VIP list of most popular long positions trailed S&P 500 by 720 bp during the three months (-8% vs. -1%).”

Kostin’s analysis considered $US2.1 trillion in equity assets held by 836 hedge funds.

Unsurprisingly, given the recent headlines, healthcare stocks were the biggest drag for the quarter, with more than two-thirds of the dropoff coming from those stocks.

More recently, hedge funds have been increasing investments in tech companies, which hasn’t been helpful.

“Funds increased Info Tech net weighting by 230 bp to 17.6%, the first increase in the sector in 2015, but remain 200 bp net underweight the sector relative to the Russell 3000,” wrote Kostin.

The worst performing stock in the VIP basket year-to-date, according to the note, has been Yahoo with a -35% return, followed by Cheniere Energy (-29%), American Airlines (-20%), Liberty Global (-10%), and Mylan Pharmaceuticals (-9%).

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