Stock-picking hedge funds are finally beating low-cost equity index funds this year thanks to bets like Valeant Pharmaceuticals, Microsoft and Yum Brands.
The S&P 500 index gained 1.29 percent from January through April this year, while the Absolute Return U.S. Equity Index, which tracks hedge funds in the sector, is up 2.03 percent over the same period.
A small group of hedge funds has done even better. Symmetric, which analyzes the quarterly public disclosures of hedge fund stock ownership, ranked the top 20 firms of 1,000 total based on their three-year performance above sector benchmarks. Broadfin Capital is first, followed by Brave Warrior Advisors and Hound Partners.
Here are the stocks that made the most money for that elite group of hedge funds so far in the second quarter, according to a cumulative analysis by Symmetric.
Top 10 most profitable hedge fund bets 2Q 2015
| Rank | Ticker | Name | Fund(s) | Average Position Size | 2Q15 Return of Stock vs Sector (3/31-present) | Stock Return (3/31-present) | Sector Return (3/31-present) |
|---|---|---|---|---|---|---|---|
| 1 | VRX | Valeant Pharmaceuticals | Brave, Brenner, Hound, Locust, Pershing, Steadfast, Valueact | 18% | 10.70% | 13.10% | 2.40% |
| 2 | NFLX | Netflix | Matrix | 12% | 45.50% | 47.20% | 1.60% |
| 3 | MSFT | Microsoft | Brave, Dorsal, Magellan, Steadfast, Valueact | 8% | 14.30% | 18.80% | 4.50% |
| 4 | YUM | Yum! Brands | Corvex, Locust, Magellan, Senator | 3% | 18.30% | 20.00% | 1.60% |
| 5 | DATA | Tableau Software | Dorsal, Matrix | 8% | 14.50% | 19.00% | 4.50% |
| 6 | HZNP | Horizon Pharma | Broadfin | 15% | 9.30% | 11.80% | 2.40% |
| 7 | AEC | Associated Estates Realty | V3 | 9% | 14.20% | 16.60% | 2.50% |
| 8 | MIC | Macquarie Infrastructure | Brenner, Locust, Senator | 10% | 3.60% | 6.00% | 2.40% |
| 9 | EQIX | Equinix | Brave, Dorsal, Echo, V3 | 4% | 7.30% | 11.80% | 4.50% |
| 10 | QSR | Restaurant Brand | Hound, Matrix, Pershing | 4% | 6.80% | 9.70% | 2.90% |
Source: Source: Symmetric, based on 13F SEC filings
Some of the positions are relatively crowded.
Valeant, for example, is owned by seven of the 20 hedge funds, according to Symmetric. Microsoft and Yum also have significant hedge fund overlap with five and four funds holding each, respectively.
"Investors holding a basket of hedge funds can often end up with exposure to just a few key bets," Symmetric wrote in a report on the holdings.
The top five recent new portfolio additions by the group of 20 top-performing funds as a percentage of their portfolios were Valeant (Pershing Square Capital Management, Steadfast Capital); Kraft Foods (Hound, Senator Investment Group, Southpoint Capital Advisors); Taubman Centers (V3 Capital Management); ProLogis (V3) and IBM (Magellan Asset Management).
The top five most-increased positions were Visa (Akre Capital Management, Echo Street Capital Management, Magellan, Steadfast), American Realty Capital Properties (Corvex Management), Actavis (Corvex, Locust Wood Capital Advisors, Pershing Square, Senator, Steadfast), Halliburton (Brave Warrior, ValueAct Capital) and Valeant (Locust, Hound), according to Symmetric.
