Hedge funds' favorite stocks lag broader market -Goldman data

By Svea Herbst-Bayliss
BOSTON, Nov 23 (Reuters) - Hedge fund managers' favorite
stocks stumbled hard this year to post their worst returns since
the financial crisis with health-care companies, such as Valeant
Pharmaceuticals VRX.TO , leading the way lower, according to
new data from Goldman Sachs (N:GS).
Goldman analysts calculated that the basket of managers' 50
most heavily owned stocks - among which are Allergan (N:AGN_pa) AGN.N ,
Facebook FB.O , Netflix NFLX.O and Cheniere Energy LNG.A -
lost 2.4 percent since January, while the Standard & Poor's 500
stock index gained 3 percent during the same time.
Since August, when Goldman rebalanced what it calls its
Hedge Fund VIP list, the industry's favorite stocks have lost 5
percent, compared with the S&P 500's 1 percent gain, Goldman
said in a report released on Monday.
"Health-care stocks within the basket, most notably VRX,
were responsible for nearly 70 percent of the basket's negative
return," the report said, referring to Valeant.
Valeant's stock price tumbled some 70 percent in the 3-1/2
months from July through mid-October amid questions about its
drug pricing strategy and accounting practices. The heavy losses
have weighed on hedge funds including William Ackman's Pershing
Square (N:SQ) and Nehal Chopra's Tiger Ratan, investors have said.
Hedge funds' stock picks and what managers earn off their
bets have been scrutinized for years, but they are receiving
extra attention now that pension funds and other institutional
investors are putting more money into hedge funds.
Energy company Cheniere, which is among the top-10 holdings
of 14 hedge funds and is 64 percent-owned by hedge funds, also
dragged on returns, having dropped 29 percent this year.
Traditionally, the Hedge Fund VIP list has outperformed the
S&P 500, the Goldman data show, noting that the list beat the
S&P 500 by 2.65 percentage points last year. In 2013 it beat the
S&P 500 by 9 percentage points after beating it by 7 percentage
points in 2012.
When stocks tumbled in August amid concerns of slower growth
in China and nervousness about when the Federal Reserve will
raise interest rates, many fund managers adjusted their
holdings, cutting health-care exposure and adding to technology
holdings.
"Hedge funds moved away from laggards to stronger
performers," Goldman analysts wrote, noting that the VIP list
now includes Chinese web services company Baidu Inc BIDU.O and
online payments system company PayPal Holdings PYPL.O and no
longer includes food company Kraft Heinz Co KHC.O and Valeant.