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Goldman: Follow the 'smart money' because the stocks most loved by pro investors are crushing the market

  • Goldman Sachs says the stocks most owned by hedge funds and mutual funds are soundly beating the market this year.
  • The firm's basket of 13 companies, which are on both the Goldman "Hedge Fund VIP" and "Mutual Fund Overweight Positions" lists, rallied 21 percent this year.
  • Technology is the favorite sector by far in Goldman's analysis.

Stocks most owned by hedge funds and mutual funds managing more than $3 trillion are handily beating the market this year, according to Goldman Sachs.

Technology is by far the favorite sector of professional investors, with hedge funds increasing their bets in the space last quarter by a large amount.

"Follow the proverbial 'smart money.' The favorite stocks shared by both mutual fund and hedge funds have generated higher median YTD returns than the consensus most out-of-favor stocks," strategist David Kostin wrote in a note to clients Friday.

The firm's basket of 13 companies, which are on both the Goldman "Hedge Fund VIP" and "Mutual Fund Overweight Positions" lists, rallied 21 percent this year through Friday versus the S&P 500's 9 percent return.

Here are the 13 stocks hedge funds and mutual funds are betting on. Goldman says its analysis covers $1.9 trillion in hedge fund assets and $1.3 trillion in large cap mutual fund assets.

Goldman noted that technology is the favorite sector by far of professional investors. Hedge funds particularly love the "FAANG" stocks: Facebook, Apple, Amazon, Netflix and Google parent Alphabet, the firm said.

Hedge funds are increasing their bets on technology, while mutual funds appear to be taking some profits, according to Goldman.

"Hedge fund managers increased net positioning in Info Tech by 82 bp, ending the quarter 352 bp [basis points] overweight relative to the Russell 3000 (25% vs. 21%)," the report said.

The two big money manager classes don't agree on everything, according to the Goldman report. The financial sector is the most underweight group among hedge funds, but it is the second-most overweight sector by mutual funds, the report said.

Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.

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