New York (HedgeCo.net) – Some of the favorite stocks of hedge funds have gone through the worst three-month stretch of performance since 2007-2008 and that terrible performance has led to highly concentrated portfolios.

A recent article from MarketWatch highlighted the lack of diversification and stated that the portfolios are the least diversified they have been in 30 years and that was according to research from Goldman Sachs. According to the article, the stocks most favored by 836 hedge funds lagged the S&P 500 by seven percent during a recent three-month stretch. The main culprit in the underperformance and also the reason for the highly concentrated portfolios was a significant drop in healthcare stocks.

As the funds fled the healthcare sector, they have flocked to large-cap tech and internet stocks such as Amazon (Nasdaq: AMZN), Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL) and the recently formed parent company of Google, Alphabet (Nasdaq: GOOGL). “The typical hedge fund has an average of 67% of its long-equity assets invested in its 10 largest positions, continuing the trend of higher ‘density’ in the past decade and reaching the highest level since the Financial Crisis,” Goldman noted.

Rick Pendergraft
Research Analyst
HedgeCoVest