The surprising hedge fund strategy that's beating the market

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Humbling of hedge funds

A simple but elusive strategy has been beating the market this year: Just own what the hedge funds don't.

Stocks with the lowest concentration in hedge fund portfolios as measured by equity capitalization have crushed the this year, according to a Goldman Sachs analysis. The "low-concentration" basket has turned in a basically flat performance that while unspectacular far outdistances the market index, which is down 6 percent year to date.

That means owning stocks such as Realty Income, Exxon Mobil, 3M and Reynolds American, all of which have a comparatively low concentration in hedge fund portfolios, has been a better deal than holding Legg Mason, Autodesk, Williams Cos. and Tenet Healthcare, companies that are popular with managers.

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The latter group, or most concentrated stocks, has performed miserably, dropping about 10 percent year to date, according to Goldman.