Hedge funds not only are beating the market this year, but they're also doing it without much shuffling in their holdings.
For years, the industry has been the financial markets' version of the gang that couldn't shoot straight, posting years of underperformance during which investors would have been better off holding plain-vanilla index funds instead of taking the risks that hedge funds imply.
However, 2018 has been kinder.
Multiple trackers of industry performance show outperformance when compared with the S&P 500 and Russell 3000, particularly when it comes to closely held stocks.
Goldman Sachs tracks 848 funds that hold $2.3 trillion in assets — the industry in total has nearly 9,800 funds and $3.2 trillion in assets, according to HFR — and found managers' fairly long-standing market bets have been paying off.
In fact, the most popular stocks have outperformed the S&P 500 by nearly a full percentage point — a 3.5 percent gain compared with the index's 2.6 percent rise through May 16.
Morever, a group of 20 stocks with the largest share of their market capitalization held by hedge funds has outperformed by nearly 2 percentage points. Funds overall have averaged a 2 percent gain for the year.
As for individual stocks, there were some interesting trends.
First and foremost, there's been little shifting of stocks in and out — what is referred to among managers as "turnover" — as the biggest bets are providing the best returns.
While Facebook remains the most popular stock for managers, it also increased its popularity more than any other name during the first quarter.
Goldman strategist Ben Snider said the growth in popularity came "with hedge funds viewing the stock's volatility as a buying opportunity." Indeed, despite a torrent of negative headlines, Facebook shares are up 4.4 percent year to date, nearly double the S&P 500's performance though considerably below the more than 10 percent jump in the technology sector.
Other most popular adds were Microsoft, Aetna, Monsanto and XL Group. Stocks that saw the biggest decline in hedge fund ownership included Amazon, Apple, McDonald's, Citigroup and Schlumberger.
Hedge fund ownership has turned highly concentrated, with an average 68 percent in holdings coming from the top 10 positions. The record is 69 percent set in the first half of 2016.
Turnover has been restrained, with just 13 new stocks entering a basket of the 50 most-held positions that Goldman tracks.
Managers also have been busy covering short positions, as the most-shorted stocks have been outperformers. Snider said energy stocks with the biggest bets again them have surged 30 percent since the start of the second quarter.