Now that 13-F reporting season is over, we have the data to compile who bought, who sold, and what the top holdings of the largest hedge funds are.
To help in that endeavor, we used the latest Q1 Hedge Fund quarterly ownership highlights courtesy of FactSet. This is what it found:
- Equity Exposure Declines 6.9% in Q1: The top 50 hedge funds decreased their equity exposure by 6.9% in Q1.
- All Ten Sectors Hit with Aggregate Sales: All ten GICS sectors experienced aggregate sales, with the Information Technology, Energy, and Consumer Discretionary groups leading the selloff.
- Top Purchase- Facebook; Top Sale- Apple: Facebook was the largest purchase by the top 50 hedge funds in Q1, while Apple was the largest sale.
- Funds Unload U.S. and Chinese Equities: Hedge funds dumped $55 billion worth of U.S. equities and $2.8 billion worth of Chinese equities during the quarter.
- Hedge Fund Holdings Underperforming Year-to-Date: The aggregate hedge fund portfolio of the top 50 holdings has underperformed the S&P 500 Total Return Index in Q1 and on a year-to-date basis.
Here are the details:
Top 50 Hedge Funds Sell Information Technology
The 50 largest hedge funds decreased their equity exposure by 6.9% in Q1 2016. This marks the second consecutive quarter in which equity exposure declined. All ten GICS sectors experienced aggregate sales, with the Information Technology, Energy, and Consumer Discretionary groups leading the selloff. The defensive sectors, such as Telecom, Utilities, Health Care, and Consumer Staples, saw the smallest amount of aggregate sales.
Apple Goes from Top Purchase in Q4 to Top Sale in Q1
In Q4 2015, the Information Technology sector was the largest aggregate purchase by the top 50 hedge funds. Hedge funds bought $7.2 billion worth of shares in the sector, led by inflows into Apple, Broadcom, and EMC Corp. In Q1, these fund flows completely reversed. The top 50 hedge funds removed $18.7 billion from the Information Technology sector, which represented the largest selloff of any group. Apple, which was the top purchase by hedge funds last quarter, became the top sale by hedge funds in Q1. The company saw $7.1 billion of its stock removed by hedge funds. Icahn Associates Holding was the main contributor to the selloff, as the activist firm exited its entire investment, valued at $4.8 billion. Broadcom Limited experienced a similar pattern to Apple. The semiconductor and equipment firm was the third largest purchase in the Information Technology sector last quarter. In Q1, Broadcom became the second largest sale overall, as hedge funds dumped $5.6 billion worth of shares in the company.
Facebook is Largest Purchase by Hedge Funds in Q1
Despite the mass selling within the Information Technology sector, the top 50 hedge funds managed to make some purchases as well. One of those purchases was Facebook. Hedge funds added over $3 billion worth of Facebook stock to the aggregate portfolio, making the social networking company the top purchase in Q1. The purchases were led by Viking Global Investors, which initiated a new stake in Facebook worth $2.3 billion. EMC Corporation was another company in the Information Technology sector that hedge funds seemed to favor. The information security and data storage firm drew $1.3 billion in inflows last quarter and saw another $1.8 billion in equity additions in Q1. EMC was the third largest purchase by hedge funds in Q1 and also a top ten purchase during Q4.
Microsoft is Most Widely Held Stock
At the end of Q1, 25 hedge funds had a position in Microsoft, making it the most widely held stock by the top 50 hedge funds. This was an increase from the 24 funds that held the stock at the end of Q4.
Funds Remove $10 Billion from Energy and Consumer Discretionary
In addition to the aggregate sales in the Information Technology sector, the top 50 hedge funds also significantly decreased their positions in the Energy and Consumer Discretionary groups. Hedge funds removed $10 billion from the Energy sector, with $950 million in outflows coming from Schlumberger NV, and over $1 billion leaving Halliburton and Pioneer Natural Resources. Another $10 billion came out of the Consumer Discretionary sector. Time Warner Cable and Amazon, which represented the two largest holdings in the sector, each experienced a large selloff during the quarter. Hedge funds removed $1 billion worth of stock in Time Warner Cable and $691 million worth of stock in Amazon. Additionally, McDonald’s suffered an even larger blow with $1.4 billion in shares leaving the fast food chain. The big hit within the sector came from the Media GICS industry group. The top 50 hedge funds sold off $4.3 billion worth of stock in the Media group, making it the fifth largest aggregate sale of a GICS industry group in Q1. This is not a new occurrence for media companies. Back in Q4, the Media group saw hedge fund outflows of nearly $3 billion.
Consumer Discretionary Becomes Largest Sector Weight in Aggregate Hedge Fund Portfolio
With the amount of selling that hedge funds did in the Information Technology sector during Q1, the group now makes up only 17.8% of the aggregate hedge fund portfolio, compared to 19.5% in Q4. This means that it is no longer the largest weighted sector in the hedge fund portfolio. That title now belongs to the Consumer Discretionary sector. The Consumer Discretionary group makes up 18% of the aggregate hedge fund portfolio, which is a slight increase from 17.7% in Q4.
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The Punchline: Hedge Fund Holdings Underperforming in 2016
On a total return basis, the aggregate hedge fund portfolio of the top 50 holdings has underperformed the S&P 500 Total Return Index in Q1 2016 and year-to-date. Hedge fund holdings decreased 1.5% in the first quarter and are currently down 2.9% for the year. The S&P 500 Total Return index increased 1.4% in the first quarter and is currently up 1.1% this year. A reason for the underperformance has been the struggles year-to-date of some hedge fund favorites, such as Allergan (-26.6%), Apple (-10.2%), Icahn Enterprises (-11.7%), Netflix (-20.9%), and JD.com (-26.9%).
Finally, here are the top holdings, top buys and top sales of the 50 biggest holdings in Q1.