Apple, Rivals Matter Most to Hedge Funds

BOSTON (TheStreet) -- Apple (AAPL) and rivals Microsoft (MSFT) and Google (GOOG) were among the stocks that mattered most to hedge funds, appearing most frequently as top holdings.

According to Goldman Sachs' first-quarter Hedge Fund Trend Monitor, which dissects 700 hedge funds with $1.25 trillion in equity assets, Apple ranks as the No. 1 "must-have" stock. While billionaire George Soros dumped nearly 100,000 shares of Apple in the first quarter, the company was among the top 10 positions at 63 hedge funds as of March 31, heading the so-called VIP list.

Goldman, which limits the hedge fund universe to funds with 10 to 200 distinct equity positions, says the hedge fund VIP list offers an easy vehicle for investors seeking to "follow the smart money" based on 13-F filings. According to the data, this basket of 50 stocks most important to hedge funds outperformed the S&P 500 in 2009 (40% to 27%) and 2010 (19% to 15%) after falling behind the broader index by nearly 1,300 basis points in 2008. The VIP list has returned 4.8% so far this year, trailing the 5.8% increase on the S&P 500.

Large-cap stocks account for 47% of hedge funds' aggregate equity assets, with Ford ( F), Intel ( INTC) and Exxon Mobil ( XOM) making the cut. The typical hedge fund allocates 35% of its assets to large-cap stocks, Goldman analysts write, and the difference between the average and the aggregate "suggests that hedge funds with the largest assets under management target large-cap stocks."

While Goldman's previous note on fourth-quarter trends in hedge funds focused largely on commodities, analysts noted that in the first quarter, hedge fund managers used exchange traded funds, or ETFs, more for hedging purposes.

Goldman analysts say hedge funds used ETFs more for hedging their bets than as directional vehicles. Analysts estimate that 18% of hedge funds' short positions are via ETFs. The $100 billion of short ETF positions accounts for 80% of the hedge fund gross ETF exposure, Goldman analysts write.

Perhaps most shocking is that Goldman analysts say ETFs account for 4% of the U.S. stock market, more than the roughly 3% of the U.S. equity market owned by hedge funds. For context, U.S. households directly own 33% of the domestic equity market and indirectly own another 21% of the stock market via mutual funds, according to Goldman.

The VIP list generated by Goldman Sachs based off hedge funds' filings, though, is of the most interest to retail investors. In the most recent quarter, several companies were new entries to the 50-stock VIP list, including BP ( BP), Priceline.com ( PCLN), Netflix ( NFLX) and Mastercard ( MA).

The following pages detail the 10 stocks that represent the most important positions for hedge funds, according to Goldman's data, and are ranked by the number of funds that count each stock as a top 10 holding.

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10. CIT Group ( CIT)

Company Profile: CIT Group provides commercial financing and leasing products and other services to small- and middle-market businesses. Due to the financial crisis, CIT Group declared bankruptcy in November 2009 before quickly emerging a month later.

Number of Funds With Stock as Top 10 Holding: 23

Average Portfolio Weight as a Top 10 Holding: 8%

Number of Funds With 10 to 200 Positions Owning Stock: 34

Major Hedge Fund Investors: Institutional investors account for nearly all shares outstanding of CIT Group. Institutional ownership of CIT Group totals 94.6%, with Bruce Berkowitz's Fairholme Capital as the biggest holder. Oaktree Capital Management took a new stake in CIT Group during the first quarter, adding more than 8.7 million shares.

Among hedge fund ownership, David Einhorn's GreenLight Capital reported a stake of 6.6 million shares of CIT Group as of March 31, carrying a market value of $279 million. That's down 675,000 shares from the fourth quarter. Other sellers include John Paulson of Paulson & Co., who cut his stake in CIT Group by 2 million shares during the first quarter.

Other hedge fund owners include Daniel Loeb's Third Point, Taconic Capital Advisors and Steve Cohen's SAC Capital Advisors.


9. Pfizer ( PFE)

Company Profile: Pfizer makes medicines including Advil, Robitussin, Xanax, Zoloft, Lipitor and ChapStick.

Number of Funds With Stock as Top 10 Holding: 27

Average Portfolio Weight as a Top 10 Holding: 6%

Number of Funds With 10 to 200 Positions Owning Stock: 53

Major Hedge Fund Investors: Pfizer has attracted some of the biggest investors in the hedge fund world, including David Einhorn of Greenlight Capital, who bought 1.8 million shares of the company during the first quarter. Lee Ainslie of Maverick Capital was also a fan of Pfizer in the first quarter, adding 5.5 million shares to boost his fund's stake to more than 20 million shares.

On the other hand, John Paulson eliminated his fund's holding in Pfizer entirely during the first quarter. Similarly, David Tepper of Appaloosa Management reduced his stake in Pfizer by 1.1 million shares to 15.4 million shares.

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8. Smurfit-Stone Container ( SSCC)

Company Profile: Smurfit-Stone makes paperboard and paper-based packaging in North America, including containerboard and corrugated containers. In January, Rock-Tenn ( RKT) said it would purchase Smurfit-Stone in a $3.5 billion cash-and-stock transaction, a mere seven months after Smurfit-Stone emerged from Chapter 11 bankruptcy protection.

Number of Funds With Stock as Top 10 Holding: 28

Average Portfolio Weight as a Top 10 Holding: 8%

Number of Funds With 10 to 200 Positions Owning Stock: 48

Major Hedge Fund Investors: Smurfit-Stone Container is one of the new additions to this quarter's VIP list, according to Goldman. The acquisition bid by Rock-Tenn made the company an attractive buy for hedge funds, it seems.

At the top of the institutional ownership list is John Paulson. Paulson & Co. bought more than 9 million shares of Smurfit-Stone in the quarter, which had a value of $353 million as of March 31.

Among other hedge fund buyers, Barry Rosenstein's Jana Partners upped its stake in Smurfit-Stone to nearly 5.2 million shares. Daniel Loeb's Third Point fund increased its stake by 750,000 shares to 2.2 million as of March 31.


7. LyondellBasell Industries ( LYB)

Company Profile: LyondellBasell is the world's third-largest chemical company. The Netherlands-based company emerged from bankruptcy in April 2010 and began listing on the New York Stock Exchange in October.

Number of Funds With Stock as Top 10 Holding: 30

Average Portfolio Weight as a Top 10 Holding: 9%

Number of Funds With 10 to 200 Positions Owning Stock: 48

Major Hedge Fund Investors: James Dinan's York Capital Management is the top hedge fund owner of LyondellBasell, with reported ownership of more than 5 million shares of the chemical company, although that's down more than 500,000 shares from the fourth quarter.

Daniel Loeb's Third Point, Barry Rosenstein's Jana Partners, David Einhorn's Greenlight Capital and Phillip Gross' Adage Capital were also among the biggest hedge fund investors in LyondellBasell as of March 31.

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6. Qualcomm ( QCOM)

Company Profile: Qualcomm is a semiconductor company benefiting more than many rivals from sales to cell-phone and smartphone companies.

Number of Funds With Stock as Top 10 Holding: 31

Average Portfolio Weight as a Top 10 Holding: 4%

Number of Funds With 10 to 200 Positions Owning Stock: 46

Major Hedge Fund Investors: Qualcomm is a big favorite among investment managers, with institutional ownership accounting for more than 80% of shares outstanding.

Among hedge funds, Lee Ainslie's Maverick Capital increased its stake in Qualcomm by 672,000 shares in the first quarter, giving the fund 7.8 million shares as of March 31. Stephen Mandel's Lone Pine Capital made an even bigger bet on Qualcomm in the first quarter, adding nearly 3.8 million shares to bring the fund's total stake to more than 6.3 million shares.


5. Citigroup ( C)

Company Profile: Citigroup is the well-known financial-services company, with a broad range of financial products and services, including consumer banking and credit cards.

Number of Funds With Stock as Top 10 Holding: 43

Average Portfolio Weight as a Top 10 Holding: 6%

Number of Funds With 10 to 200 Positions Owning Stock: 74

Major Hedge Fund Investors: Citigroup was adored by hedge fund investors during the fourth quarter of 2010, but the winds changed in the first quarter and several managers slashed positions in the bank stock.

David Tepper's Appaloosa Management dumped 4 million shares of Citigroup in the first quarter, while Stephen Mandel's Lone Pine cut its stake by 5.1 million shares. Lee Ainslie's Maverick Capital completely sold out of its position in Citigroup, which totaled nearly 7.9 million shares at the end of 2010.

On the other hand, George Soros' Soros Fund Management picked up 1.8 million shares of Citigroup in the first quarter, bringing his stake to 2.9 million shares. Similarly, Phillip Gross' Adage Capital and Bill Ackman's Pershing Square Capital Management increased positions in Citigroup during the first quarter.

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4. Google ( GOOG)

Company Profile: Google hosts two-thirds of all searches on the Internet. While the company's strength is indexing Web sites and delivering online ads, Google has focused on operating systems and software, including the Android platform and Chrome browser.

Number of Funds With Stock as Top 10 Holding: 48

Average Portfolio Weight as a Top 10 Holding: 5%

Number of Funds With 10 to 200 Positions Owning Stock: 73

Major Hedge Fund Investors: Institutions own more than 78% of the Internet giant's outstanding shares, although hedge fund managers account for only a fraction of that ownership group.

Among the biggest hedge fund owners of Google are D.E. Shaw & Co., which sold 105,000 shares of Google during the quarter. The fund had 491,000 shares as of March 31. Phillip Gross' Adage Capital also sold shares of Google during the quarter.

On the other hand, Lee Ainslie's Maverick Capital bought 63,000 shares of Google during the quarter, upping the fund's stake to 478,000 shares as of March 31. JPMorgan's Highbridge Capital also bought shares of Google during the quarter.


3. JPMorgan Chase ( JPM)

Company Profile: JPMorgan Chase is a global financial-services company that provides investment and retail banking in the U.S. with operations worldwide.

Number of Funds With Stock as Top 10 Holding: 49

Average Portfolio Weight as a Top 10 Holding: 5%

Number of Funds With 10 to 200 Positions Owning Stock: 81

Major Hedge Fund Investors: Like many financial companies, JPMorgan Chase saw plenty of hedge fund selling during the first quarter.

Most notably, U.K.-based Lansdowne Partners, which bet against Northern Rock during the financial crisis, slashed its stake in JPMorgan by 13.6 million shares. Other sellers included Lee Ainslie's Maverick Capital, D.E. Shaw & Co. and Stephen Mandel's Lone Pine Capital.

Among first-quarter buyers of JPMorgan was Andreas Halvorsen's Viking Global Investors, which bought up more than 8.2 million shares of the bank.

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2. Microsoft ( MSFT)

Company Profile: Microsoft is best known for its flagship Windows operating systems, as well as other software applications and consumer products, like the Xbox 360 video-game console.

Number of Funds With Stock as Top 10 Holding: 54

Average Portfolio Weight As a Top 10 Holdings: 6%

Number of Funds With 10 to 200 Positions Owning Stock: 85

Major Hedge Fund Investors: Investors have heard value investors talk up Microsoft for months. Now it seems hedge fund managers are also touting Microsoft as a great investment.

Among hedge fund buyers were Renaissance Technologies, which snatched up 3.1 million shares of Microsoft during the first quarter. David Einhorn's Greenlight Capital was another buyer, acquiring 1.3 million shares to bring the fund's stake to 9 million shares as of March 31.

Not all hedge funds were buying, though. Steve Cohen's SAC Capital and D.E. Shaw & Co. each dumped 2 million shares of Microsoft during the first quarter.


1. Apple ( AAPL)

Company Profile: Apple makes personal computers, mobile-communications devices, and portable digital music and video players. The company is best known for its Mac line of computers, the iPod, iPhone and iPad devices, and iOS operating system.

Number of Funds With Stock as Top 10 Holding: 63

Average Portfolio Weight as a Top 10 Holding: 7%

Number of Funds With 10 to 200 Positions Owning Stock: 93

Major Hedge Fund Investors: Apple continues its reign atop Goldman's hedge fund VIP list, but the number of funds with the stock as a top 10 holding is down from the fourth quarter.

Among sellers of Apple stock is George Soros. According to Insider Monkey, Soros bought 210,000 call options, which were offset by a 280,000 position in Apple put options, an indication Soros' fund is bearish on Apple.

Other selling hedge funds included Lone Pine Capital, Adage Capital, Jana Partners and Viking Global.

On the other hand, David Tepper made a huge bet on Apple in the first quarter, initiating a $70 million position in the stock. Other buyers included Maverick Capital, Third Point, and Tiger Global.

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-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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