BOSTON, May 23 (Reuters) - Hedge funds turned their backs on Johnson & Johnson and Amazon.com Inc in the last months, kicking the former market darlings into a group where they see stock prices dropping, research from Goldman Sachs shows.
Healthcare company Johnson & Johnson, whose share price slipped 3.14 percent through mid-May from Jan. 1, now heads Goldman’s newly created list of “50 Very Important Short Positions.” Exxon Mobil Corp., Intel Corp, International Business Machines and Amazon.com round out the top five companies that represent the largest short positions in the $2 trillion hedge fund industry.
The listing is the newly created counterweight to Goldman’s widely followed VIP list which ranks the 50 stocks that matter most to hedge funds. Four of the five top names now on the short list - Exxon, J&J, Amazon.com and IBM - were listed among the industry’s 50 favorites only three months ago when Goldman last issued its list in February.
The change in heart comes even as some of the named short companies saw share prices rise or dip only modestly. Online retailer Amazon, for example, was up 24 percent through mid-May from the start of the year.
But now some managers are clearly worried.
Greenlight Capital’s David Einhorn, who has been known to tank a stock by simply uttering its name, cast doubt over Amazon a week ago when he called the company’s future a “riddle” at the Ira Sohn investment conference. His musings sparked speculation that he might be short Amazon or might soon go short Amazon. His spokesman declined to comment.
For hedge fund managers, going short, or betting a stock will fall, has long been a key to success. But not this year.
Goldman research found that hedge funds’ “short stock selections have caused hedge funds to lag both the S&P 500 and the average large-cap mutual fund so far in 2012.”
The average hedge fund had gained 4 percent through the middle of May while the broader market was up twice that, Goldman’s research showed.
During the first three months of 2012, hedge funds turned more optimistic, increasing their net long exposure slightly to 49 percent from 46 percent at the end of the fourth quarter 2011. Most hedge funds still liked what they already liked, leaving them to turn over only 31 percent of all positions.
The industry continued its love affair with technology industry darling Apple Inc, where the stock price is up 37.5 percent despite some roller-coaster moves. Apple ranked No. 1 on the list of stocks that matter most to hedge funds followed by internet software giant Google Inc.
Financial services giant JP Morgan Chase, whose acknowledgement of a multi-billion dollar trading loss has pushed its share price down 21 percent this month, still ranked among the industry’s favorite stocks but did drop to No. 9 from No. 4.
Newcomers on the favorites list include car company Ford Motor Co, whose dramatically improved financial health led to a ratings upgrade from Moody’s Investors Services this week, insurer American International Group, whose earnings more than doubled in the first quarter, and billionaire investor Warren Buffett’s Berkshire Hathaway.
Goldman found that the basket of 50 stocks that “matter most” has outperformed the S&P 500 by 55 basis points on a quarterly basis since 2001 and has outperformed the S&P 500 by 62 basis points for the year to date through May 15.