Google Is The New Hedge Fund Hotel, Boeing The Market Darling, And Apple's Looking Rotten

Date: Wednesday, May 22, 2013
Author: Agustino Fontevecchia, Forbes

The 50 largest hedge funds in the world decided to sell Apple AAPL -0.74% in the first quarter, replacing it with Boeing BA +0.03% and, interestingly, Norwegian Cruise Holdings which went public in January, according to a report by FactSet.  The group of hedge fund heavyweights, which includes the likes of Carl Icahn, David Einhorn, and Dan Loeb, bet on consumer discretionary, which appeared as the most overweight sector, while LyndoellBasell was the most overweight equity, compared to its weights in the S&P 500.  They shunned the IT sector, and particularly Apple, which still remains the sixth largest holding by dollar-value.  The hedge fund hotel: Google GOOG -0.2%, held by 62% of the 50 largest hedge funds.

It was a first big quarter this year.  After a rally that started in mid-November around President Obama’s reelection, stocks took off and haven’t stopped since, with the S&P 500 and the Dow continuing to break records and the Nasdaq returning to its post-dotcom-bubble levels.

And hedge funds played the market, buying Boeing en masse.  Despite battery fires that forced the Chicago, Illinois company to ground the entire 787 Dreamliner fleet, the stock handily beat the S&P 500, as hedge funders poured in $1.6 billion in inflows, or about 250% of its fourth quarter value in the funds’ aggregate portfolio.

Apple appears as the airplane maker’s mirror image.  The company now run by Tim Cook has seen its stock fall dramatically after peaking in mid-September, wiping out billions in value for hedge funds: only two quarters ago, Apple was the largest equity holding of nearly one-fourth of these funds, FactSet’s data shows.  Now, only four funds hold it as its largest position (including Einhorn’s Greenlight Capital and D.E. Shaw), yet it remains the sixth largest position by dollar value, with hedge funds sitting on $5.2 billion worth of Apple stock.

Basking in Apple’s former glory is Google, which is currently held by 62% of the largest funds and is the second largest holding by dollar value, at $6.8 billion.  Of the group, though, only Cantillon Capital Management had Larry Page and Sergey Brin’s search giant its largest holding.

The number one spot, from a dollar value perspective, belongs to LyondellBasell.  The chemicals firm resuscitated by billionaire Len Blavatnik was also the most overweight individual equity, 2.5 percentage points over its weighting in the S&P 500.  The stock has had an impressive run and, given Leon Black’s Apollo Capital Management is sitting on 15.2% stake, it is now the top holding among the biggest funds.

It was also interesting to note that two hugely successful stocks were seeing hedge fund outflows as managers took profits.  Funds reduced their holding in New Corp by 20.3% and reduced their exposure to American International Group by 16.2%, according to FactSet.  “With these sales, fund investors seem to be predicting a slowdown or reversal for these two issues, as AIG and News Corp have had very similar […] returns as Boeing in 2013,” FactSet’s Michael Amenta explained.

The largest dollar value increase for a new position was Norwegian Cruise Line, which soared the day of its IPO.  The company counted with the support of Apollo and has delivered solid gains this year.

In terms of sectors, hedge fund hot shots threw their weight behind consumer discretionary, which counted with a 20.1% weighting in the cumulative portfolio, 8.5 percentage points larger than the sector’s weighting in the S&P 500.  Information technology was the only sector to experience outflow, while the most underweight was consumer staples, 3.6 percentage points below its S&P 500 weighting.

It has been an incredibly hard time for hedge funds over the past few years, as managers have struggled to keep up with the market.  2013’s incredible rally has apparently made their job even more difficult, as several funds have disclosed that they have failed to make meaningful gains vis-à-vis the broader equity market.  The precipitous decline in Apple AAPL -0.74%’s stock price was one contributing factor, as it was the most widely held stock.  Now, with Google leading the charge, fund managers better hope Sergey keeps the profits coming.