Where Have The 20 Biggest Hedge Funds Been Investing?

Where Have The 20 Biggest Hedge Funds Been Investing?
Carl Hazeley

about 2 years ago4 mins

  • The top 20 hedge funds last year earned a record $65 billion for their customers last year, with a lot of them backing ever-reliable tech stocks.

  • Some went for more off-the-beaten-track individual stocks with the potential for outsized returns, and Ray Dalio’s firm was particularly keen on emerging markets.

  • And others set themselves up to profit from volatility by buying call and put options, a strategy you could replicate if you agree with their take.

The top 20 hedge funds last year earned a record $65 billion for their customers last year, with a lot of them backing ever-reliable tech stocks.

Some went for more off-the-beaten-track individual stocks with the potential for outsized returns, and Ray Dalio’s firm was particularly keen on emerging markets.

And others set themselves up to profit from volatility by buying call and put options, a strategy you could replicate if you agree with their take.

Mentioned in story

Hedge funds have been under a lot of pressure in the last couple of years. It’s not easy to find assets that outperform the market when almost everything’s been rising indiscriminately, after all. But they’ve risen to the challenge, with the top 20 hedge funds earning a record $65 billion for their customers last year. So I wanted to take a closer look at their most recent third-quarter filings, and investigate exactly what they’ve been buying.

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Tech stocks

The top hedge funds were by and large still pretty positive on big US tech stocks.

TCI’s top holdings were Google-parent Alphabet, which made up 19% of its total holdings, telecoms firm Charter Communications (18% of its portfolio), Microsoft (11%), and Visa (11%). DE Shaw was similarly focused on tech, but its investments were much less concentrated: Microsoft – its biggest position – represented just 2% of its total, followed by Apple and Tesla, which each made up 1% of its portfolio.

UK-based hedge fund Egerton was big on tech and communications names too, owning Alphabet (11%), Charter Communications (7%), and Microsoft (5%). But the fund also had a more cyclical infrastructure tilt, with a significant holding in Canadian Pacific Railway (9%).

Individual stocks

Some hedge funds were happy to make concentrated bets on individual stocks where they believed the balance of risk and reward was strongly skewed in their favor.

Third Point, for example, was focused on individual stock picks set to benefit from some of the major trends shaping finance and technology. 21% of its holdings were in artificial intelligence lending platform Upstart Holdings, 8% in cybersecurity firm SentinelOne, and 5% in industrial conglomerate Danaher.

Defensive bets

Outside the arguably more mainstream tech and communications picks, Baupost’s biggest two positions were in Liberty Global and Intel. Both could be seen as relatively “defensive” bets: Liberty as a telecoms company, and Intel by virtue of its size and product suite.

That caution was mirrored by funds like Elliott Management, which – aside from betting big on Dell (19%) – put 13% of its capital into put options on the Nasdaq 100, the US’s key tech index. That’s a bet on a significant drop in its value.

Volatility hedges

Plenty of hedge funds have been betting on volatility to come, combining call options with put options in a bid to profit if prices swing one way or another.

Millennium, for one, hedged its bets with 3% of its portfolio in Nasdaq call options and 3% in put options. That should set it up to profit from price volatility. It also boasted significant holdings of put options on some of the biggest tech stocks, namely Amazon, Apple, and Tesla.

Farallon seemed more bearish than bullish with its bets: 8% of its holdings were S&P 500 put options and 6% were calls. Again, betting on volatility, but with markets more likely to trend downward, in its view.

Emerging market funds

Low cost exchange-traded funds make it easy to buy into the potential upside of assets in countries like China and India, the rest of Asia, and South America.

That might be why the three biggest holdings of Ray Dalio’s Bridgewater were low-cost exchange-traded funds Vanguard FTSE Emerging Markets ETF (VWO, expense ratio: 0.1%), iShares MSCI Emerging Markets ETF (EEM, expense ratio: 0.68%), and iShares Core MSCI Emerging Markets ETF (IEMG, expense ratio: 0.11%) – representing 6%, 5%, and 5% of the fund’s holdings respectively.

What’s the opportunity here?

First, the caveats: some hedge funds are relatively long-term investors, but others chop and change their portfolios incredibly frequently. And given that this data is from the end of September, some of it may be out of date by now – especially high-frequency hedge fund Citadel’s holdings. Hedge funds can also house multiple different investment strategies that are managed in separate pools, so it’s worth keeping in mind that the high-level data could reflect more nuanced, smaller bets totted up rather than a single big bet across the entire firm.

On balance, though, it’s helpful to know what some of 2021’s most successful hedge fund investors were buying, and there are a couple of ways you could use the information. For one thing, if a stock’s popular among hedge funds, you might want to look more closely at those stocks for yourself. And for another, you could cut out the middle-man: some investors simply copy what some of the biggest investors out there are doing. That’s an option, but make sure you understand why they’re buying into it – and that you buy into their thesis.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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