Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Hedge funds burned by favorite stocks

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Hedge funds underperform S&P 500 YTD

It's been a rough year for hedge funds, with many underperforming their index benchmarks or even losing money.

One explanation is crowding into bad stock picks: A new Goldman Sachs analysis of the 50 stocks most commonly held in large quantities by 777 hedge funds found the group suffered its worst monthly return outside the "crisis periods" of 2002, 2008 and 2011.

Their "longs"—bets on the appreciation of a stock's valuelagged the by 5 percent in March and April, according to a May 21 report. Long losers for the year include Google (-6 percent), General Motors (-16 percent) and Citigroup (-11 percent).

Overall, the "Hedge Fund VIP" basket has returned just 1.4 percent through May 16 versus a 2.4 percent total return for the S&P 500.

The most popular hedge fund "shorts"—bets against the value of a stock—have also backfired. The 50 most widely shorted companies actually gained 6 percent through May 16, according to the survey. Short losers for the year include Gilead Sciences (+8 percent), AT&T (+7 percent) and IBM (+1 percent).

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