If you want to know what the smart money are buying, then looking at Hedge Funds’ quarterly 13-F filings—where firms disclose what stocks they’ve bought and sold—is a good place to start.
Goldman Sachs (NYSE: GS) combed through the third-quarter 13-F filings of 833 hedge funds with $2.1 trillion in gross equity positions for its Hedge Fund Trend Monitor report that it released early this week.
In looking at the filings, the firm came up with a list of the top 10 holdings of hedge funds for its “Hedge Fund VIP” list.
According to the report, this list of 10 stocks is a tool for investors who want to “follow the smart money,” and historically, this “Hedge Fund VIP” basket has been a strong performer, though it has lagged the S&P 500 this year by about 4 percentage points. Still, in the last couple of weeks, the VIP list has been outperforming the S&P 500 index by 2 percentage points.
Goldman’s “Hedge Fund VIP” basket includes Salesforce (NYSE: CRM), Mastercard (NYSE: MA), Fidelity National Information Services (NYSE: FIS), Visa (NYSE: V), Allergan (NYSE: AGN), Google-parent Alphabet (NASDAQ: GOOGL, GOOG), Alibaba (NYSE: BABA), Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT). So far this year, these stocks are up 18.92%, 50.78%, 33.08%, 36.34%, 38.07%, 24.42%, 34.87%, 50.99%, 15.5%, and 47.17%, respectively.
But beyond these top 10 stocks owned by hedge funds, the third-quarter 13-F filings revealed that some of the best under-the-radar fund managers are doubling down on bank stocks, including Morgan Stanley (NYSE: MS), Bank of New York Mellon (NYSE: BK), Zions Bancorp (NASDAQ: ZION), Noah Holdings (NYSE: NOAH), StoneCo (NASDAQ: STNE), and HarborOne Bancorp (NASDAQ: HONE).
It’s not a surprise that hedge funds are betting big on financials considering the sector has been the biggest winner among the 11 S&P 500 sectors over the past three months, rising more than 11% during the quarter.
Of these financials Morgan Stanley, Zions Bancorp, StoneCo, and HarborOne have seen the biggest returns, gaining 23.18%, 20.62%, 86.28%, and 19.85%, respectively.
But of all the 16 stocks, analysts are most bullish on two stocks in particular: Noah Holdings, and HarborOne Bancorp.
Analysts’ average 12-month price target for Noah Holdings indicates 86.20% upside potential, while their average targets for HarborOne indicates 93.21% upside over the next year.