New York (HedgeCo.Net) The most valuable commodity is information, or at least that is what Gordon Gekko said in the movie Wall Street. While the line comes from a movie and is part of a fictional story that painted Wall Street as a bunch of money hungry crooks that would do anything to make money, there is a lot of truth to the statement. The most valuable commodity is information.

That being said, it would be nice to have information on what all the top hedge funds are investing in ahead of time or at least as they were doing it, but the best we can do for now is know what they already did. One of the best things about HedgeCoVest is that we are changing this structure. We are taking what hedge funds are doing and then replicating it within seconds in the models on our platform. This process is changing how the hedge fund industry works and we hope to add as many fund managers as possible to the platform, but for now some of the most well known hedge fund managers aren’t willing to share their trades with anyone until after the fact.

Given this scenario, Novus released their quarterly report that shows where some of the most well known hedge fund managers had their money in the first quarter. The report also shows which stocks they were buying and selling most heavily in the quarter. Seeing the value of this information, we decided to delve into the report and share some of the findings.

First, the report looks at 25 hedge funds including the likes of David Einhorn’s Greenlight, Bill Ackman’s Pershing Square, Leon Cooperman’s Omega Advisors, Carl Icahn and Paul Tudor Jones. It has a snapshot look at each of the managers with a breakdown of how the sectors are represented in the portfolio based on percentages allocated to each sector.

Looking at the ten main sectors, we looked at each of the 25 portfolios to see which sector was the most heavily weighted in each portfolio and we looked to see which ones were the least represented. Three different sectors tied for the favorite spot with each having six funds with them as the heaviest weighting—the three sectors were Consumer Discretionary, Healthcare and Technology. Conversely, the least favorite sector with 16 funds either having zero allocation or the smallest of allocations to it was the Telecom sector with the utilities sector following close behind with 13 funds either not holding any utility stocks or a very minor amount.

There were also some oddities that caught our attention as far as the individual portfolios. One such oddity was the fact that 24 out of the 25 funds and at least some exposure to financial sector. The lone manager without exposure to the sector was Carl Icahn. Another oddity was that all but two of the portfolios had exposure to the healthcare sector with the two exceptions being David Einhorn and Nelson Peltz of Trian Fund Management. Given the way the sector has performed in 2015, it seems strange for these two not to have exposure there.

As a whole, the largest exposure in terms of assets is the Consumer Discretionary sector with $360.37 billion in the long book and $123.10 billion in the short book for net assets of $237.27 billion. Second place is the Financial sector with net assets of $198.68 billion and third place goes to the Technology sector with $188.53 billion. Interestingly, the two sectors with the biggest short position exposure were tech and consumer discretionary.

The findings about the sectors that were the least favorites among the managers carries over in to the net assets category as well with only $7.54 billion in net allocations to the Telecom sector and $18.11 billion allocated to the Utilities sector.
Looking at the net percentage of assets under management, the Consumer Discretionary sector represents 13.45%, Financials represent 11.26% and Tech represents 10.69% as the three largest in terms of percentage of assets. The smallest three in percentages are Telecom with 0.43%, Utilities with 1.03% and Consumer Staples with 3.91%.

Given the strong bullish phase the market has been in for the last six years, it isn’t surprising to see how the sectors are represented. The three sectors at the bottom are considered defensive sectors and we wouldn’t expect much representation during a bullish market. If we see a shift in the percentages in the coming quarters to where the defensive sectors are making up a larger percentage of the portfolios that will suggest that the hedge fund managers are preparing for a bearish phase in the market.

Rick Pendergraft
Research Analyst
HedgeCoVest