Top Four Hedge Funds Investment Trends in Q3 2022

7 min read

Hedge funds are always looking for ways to make money, no matter what the markets are doing. And in times like this, it’s worth investigating what they’re up to. I recently took a closer look, and I discovered four big themes you can take advantage of now…

1. Hedge Funds Are up to a Good Start This Quarter 

The investment bank Goldman Sachs recently analyzed around 800 stock-focused hedge funds in the US with approximately $2.4 trillion worth of investments. They found that, on average, these hedge funds were down 12% in the first half of the year. However, a 4% gain in the third quarter has left them down “only” 9%. This is better than the S&P 500’s 14% drop so far this year.

What Could Investors Yield Out of This?

One way to mirror hedge funds is to follow their most popular bets on aggregate. While this strategy would have lost you 22% this year overall, if you timed your bets to the S&P 500’s June low, you would have been up around 18% by now, slightly outperforming the US market over the same period. This suggests that now might be a good time to consider buying back in. Trading with leverage could see the numbers going even higher, our SWAT and Black Widow System can help time the best time to enter, and the brokerages (Exness, VT Markets) that sponsor ♥️ the tools would be happy to place your orders. 

Beware, though, that September is considered the worst month for stocks. Shorting SPX in September, thus, is rarely a bad idea (and is also very much the option with the aforementioned brokerages). Click To Tweet

2. Amazon is among the most popular bets so far

Hedge fund managers are turning to Amazon as their top stock pick, replacing Microsoft. Visa has also replaced Apple in the top five. 

Overall, the group of hedge fund favorites has added 14 new members recently, including AMD, Bank of America, Citi, Charles Schwab, Biohaven, Crown, Centene, Danaher, Elastic, MercadoLibre, Netflix, PayPal, RH, and Atlassian. Click To Tweet

What are the moves here?

The basket of hedge fund top picks has outperformed the S&P 500 in 59% of quarters since 2001, with an average quarterly excess return of 0.39%, making it a smart place to consider when looking for fresh ideas

In 59% of cases, the collection of hedge funds bets has outperformed S&P500 in nearly 60% since 2001. Even though the average extra return is a meager 0.4%, it’s still a worthy place to look at if you are aiming at a longer-term perspective investment. Shorting some of the stocks short term, while buying in on some stocks might not be the worst idea either.

Hedge funds are notoriously difficult to get into, but it’s worth noting that the typical hedge fund has 70% of its buy ideas in its top 10 companies as of the end of last quarter. 

Hedge fund “concentration” hasn’t been this high since before the pandemic, and with the amount they changed their investments dropping to a new record low last quarter, it suggests these investors are battening down the hatches and making relatively focused bets. And that might mean now’s a good time to look more closely at their favorite stocks.

3. Growth Stocks Are Back on the Menu

Hedge funds have started to reverse the trend of dumping growth stocks in favor of value stocks. They have increased their holdings in tech and consumer discretionary stocks, while cutting back on energy and materials stocks. This quarter, their bet has paid off, with tech stocks outperforming the S&P 500 by about 5 percentage points, and consumer discretionary stocks by about 10 percentage points.

What are the possible moves here?

Despite the recent change in momentum, hedge funds are still underweight in growth sectors like tech compared to value sectors like materials and energy. In other words, they are still holding less tech and more materials and energy, even after adjusting their portfolios somewhat.

A way to look at it, is that perhaps it’s not a sure sign of a reversal in attitude towards the growth stocks, but surely a sign of a change in the appetite towards more growth-oriented equities. 

4. Hedge Funds are not in a Hurry to Take Extra Risks Yet

Hedge funds are keeping their leverage low, according to Goldman Sachs data. This means that they are not making big bets on companies, and are instead focusing on more conservative investments. This strategy appears to be paying off, as the funds are outperforming the market.

What are the possible moves here?

Lower leverage is what you usually see during the market selloff times, with inflation untamed, and recession in China & US talks boiling hot is no surprise. 

Hedge funds have a history of bouncing back after market drops, and this appears to be the case once again after the recent S&P 500 low. 

From here, it is likely that hedge funds will take on more risk and their biggest bets will continue to outperform the market. This suggests that now is a good time to start working some of the hedge funds’ investing ideas into your portfolio and trading.

One of the biggest risks to stock markets right now is inflation. If inflation comes in higher than expected over the next few months and the Federal Reserve hikes interest rates more than investors currently predict, then stock prices could take a serious tumble. That’s why, if you are confident in prices not going down despite the recent hikes and overall state of the economy, it is wise to consider placing some stealthy short on major indices and perhaps even individual stocks. 

CFD products are a great option if you don’t feel comfortable with Option trading and looking to make sturdy bets on Stocks going further down in 2022 and into the beginning of 2023. Just make sure not to overextend your position and enter with smaller lots.

Admiral’s, Exness and KTM offer stellar conditions for this style of trading; hence, make sure to consider the option. Alternatively, reach out to see what type of ECS Managed accounts offer exposure to this type of speculation.

Although it looks like it will be a tough time for stocks based on historical and technical trends, we have a plan to help you weather the September Effect.

Leave a Reply


This site uses Akismet to reduce spam. Learn how your comment data is processed.

Notify of

🍿️ Discover your path to a 100% yearly returns over the convos with Chris Svorcik!