I’ll tell you what, if this Facebook debacle continues to spiral out of control, it’s going to be interesting to read some of the fund letters from folks who have enjoyed riding the wave with FANG and FAAMG and any other fun acronym associated with the market’s high-fliers.
Of course odds are this storm will pass, but then again, the political environment and the ongoing trickle of negative publicity around the tech behemoths could create a kind of “Pandora’s Box” scenario (as Deutsche Bank put it, in a note out Tuesday).
It's time for Mr. Zuckerberg and the other CEOs to testify before Congress. The American people deserve answers about social media manipulation in the 2016 election.
— Mark Warner (@MarkWarner) March 20, 2018
Well in light of recent events (and especially in light of this morning’s FTC news), we thought we’d remind you that Goldman’s “vaunted” Hedge Fund VIP list of the most popular long positions “atypically outperformed” during the February drawdown and through late last month, was leading the S&P by 170 bp YTD (3.5% vs. 1.9%).
As it turns out, hedge funds refused to rotate away from growth and momentum plays in Q4 despite an environment where tax reform seemed to suggest that the tide was turning in terms of what stocks were likely to take the baton going forward.
That turned out to be a good decision because as Goldman wrote a month ago, the behavior of the VIP basket during the February rout was to a certain extent anomalous. “As the S&P 500 suffered its first 10% decline in two years, our Hedge Fund VIP basket declined in absolute terms but outperformed both the broad market and the largest short positions,” the bank observed.
They continued: “This outperformance stands in contrast to the basket’s typical ‘high beta’ behavior; the most popular stocks typically underperform during market drawdowns as investor selling weighs most heavily on their top positions.”
Well not this time, dammit. Have a look at this:
Turnover in the largest positions (which had hit record lows in Q3 2017) barely budged in Q4:
Now then, recall the following chart that shows you what those “largest positions” are: