As the environment becomes more and more favorable for U.S. stock pickers, hedge funds are poised to reap the rewards, say strategists at Goldman Sachs, according to an article in Bloomberg. The Goldman strategists analyzed 758 hedge funds with total holdings of $2.3 trillion in gross equity positions and found that their gauge puts the funds’ use of leverage to acquire positions near record highs. Taking into consideration distribution in returns and recent long positions taken by the hedge funds, the Goldman team highlighted Netflix, Advanced Micro Devices Inc., and gas explorer EQT Corp. as the S&P 500 companies most likely to outperform this year.
While last year’s volatility resulted in a macro-driven marketplace for equities around the globe, this year looks to be more micro-driven, which “bodes well for hedge fund returns,” wrote Goldman strategist Ben Snider in the team’s note. And recent shifts in individual stocks indicate that the time is ripening for active strategies and stock selection, which are less attuned to macro news and rely more on specific fundamentals, the article details. The MSCI All Country World Index also saw its average pairwise correlation fall last month to its lowest point since October 2021 at the same time that one-month returns shot up to above-average from previous pandemic lows. As the Goldman team wrote in their note, hedge funds typically do better in “micro-driven return environments…than in macro-driven market environments, like last year.”