Hedge Funds Lower Bets on Rising Stocks, Goldman Report Finds

Date: Friday, August 22, 2008
Author: Saijel Kishan, Bloomberg

Hedge funds reduced their bets in the past year that U.S. stocks would gain as the Standard & Poor's 500 Index declined and credit conditions tightened, Goldman Sachs Group Inc. said.

Such wagers accounted for 32 percent of funds' equity investments as of June 30, compared with 45 percent a year earlier, analysts led by David Kostin said in an Aug. 21 report.

Hedge funds cut their holdings in financial, consumer and industrial companies, while investments in utilities, telecom services and materials were little changed in the period, Goldman said. Bets that financial stocks would fall accounted for 24 percent of holdings at the end of June; the previous year, 32 percent of funds' portfolios wagered that financials would rise, the bank said.

Goldman analyzed quarterly filings of 745 hedge funds with combined equity holdings valued at $881 billion. The filings exclude trades using options and futures contracts as well as indexes that may offset funds' equity holdings. The filings also exclude holdings of companies not based in the U.S.

Qualcomm Inc., the world's biggest maker of mobile-phone chips and based in San Diego, led the list of 50 companies that frequently appeared among hedge funds' top 10 investments, with 38 funds holding the stock, Goldman said.

Apple Inc., based in Cupertino, California, and Microsoft Corp. of Redmond, Washington, ranked second with 37 funds holding their stock as their largest investment while 32 funds had Google Inc. as their biggest holding.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net