Only 10 percent of hedge funds have outperformed the Standard & Poor’s 500 so far this year, with the typical hedge fund up only 3 percent for the year to date, Goldman Sachs Groupchief equity strategist David Kostin told CNBC.
He spoke Monday after Goldman Sachs released its quarterly survey of 674 hedge funds with $1.2 trillion in gross assets. Only 10 percent of these outperformed the S&P 500 index, which is up 9 percent for the period, Kostin said.
Part of the problem is turnover is down, with hedge funds holding their top positions a lot longer. One out of five hedge funds has Apple
as a “significant holding,” Kostin said, and even here only 30 percent of the surveyed funds own at least one share of the popular stock.
Other hedge fund favorites include Google, Microsoft and Qualcom, which have been “consistent leading positions in the hedge fund community for the past five years,” said Kostin. All three also have been investment banking clients of Goldman Sachs.
The stocks that are “meaningful” to hedge fund portfolio managers with long positions are up 12 percent this year, he said.
“That suggests the shorts have been unfortunate and the amount of leverage that the hedge funds are having right now has been a drag on performance,” Kostin said. “The average hedge fund has taken their net exposure from 35 percent to 46 percent, and that’s been rising. In a rising market, when you have rising exposure, that’s going to drag on performance.”
Kostin is forecasting the S&P 500 will be at 1,325 in the middle of this year, but the gains will fade to 1,250 by the end of the year. He bases that on the “significant risks out there that continue to weigh on the economy,” including “very weak earnings results.”
“Sales and earnings forecast in every sector of the market have been falling for the last 30, 60, 90 days, and we’ve had no money flow,” he noted.