Going to tweet out some interesting stuff from Goldman’s latest hedge fund report that worry me. First of all, as everyone knows by now, the US stock market rally has been pretty narrow, and the 10 biggest companies are now 25% of entire market - highest since dotcom bubble. 
Lesser well known is that hedge fund portfolios are also becoming MUCH more concentrated. Top 10 positions now account for 69% of their portfolios. Number of positions avg positions fallen from 40-50 a decade ago to 30.
Suspect it’s linked to rising focus on “active share”, ie investors want their funds to take actual positions, rather than in practice just being expensive benchmark huggers. But they mostly seem to love all the same names, so crowdedness is on a secular increase.
Now for the worrying aspects. Retail trading has exploded lately, which is disconcerting.
Especially since, as Goldman Sachs notes, retail investors and hedge funds largely seem to crowd into the same stocks these days.
Now, that has been a boon to these stocks, with Goldman Sachs’s “Hedge Fund VIP basket - a collection the most popular holdings of hedge funds - enjoying really strong year.
But these hedge fund “VIPs” now have the highest price to earnings ratios - ie they’re very expensive - they’ve had since Goldman started monitoring their 13F filings.
Given how both hedge funds and retail investors are both pushing up these stocks, it looks like a fragile situation. We could see any shock snowball pretty quickly, as retail investors reverse course and hedge funds are forced to deleverage.
Apropos, here are the most popular hedge fund holdings. Basically FANGs, plus Microsoft, Alibaba, the credit card companies and - curiously - Fidelity National.
