4 min read · Sep 12, 2016
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Should you follow the investments and trades of hedge funds? We recently chatted with HedgeMind to learn more about this question and what it might mean for the average investor or trader.
HedgeMind is a unique service. They collect, analyze, and share all the things hedge funds are doing with their money. They then make that information accessible to everyone. So messages like this continue to catch people’s attention:
What follows is our Q&A about why it actually matters to follow hedge funds and how to do it properly.
What would you tell people who want to follow hedge funds? What should they be looking for?
“Find your perfect hedge fund match.”
That will be the first thing I would tell people to do. No matter whether you already know someone to follow or do not know anyone yet, the first step is to find the right hedge fund manager who match your investment style and stock interest and who you can really trust. Only with great trust, you may then have confidence to follow them closely and leverage their stock picks and invest just like them. The manager you want to follow has to be the same investment style. If you are a growth investor, you may not want to follow Warren Buffett or Seth Klarman. Same idea if you like biotech stocks, you don’t want to follow a hedge fund manager who focuses on financial stocks.
Find Your Hedge Fund Match page offers investors 3 simple ways to find the right managers to follow.
Once you have a list of potential managers to follow, I suggest investors to choose hedge funds whose portfolios have “50–50” characteristics, i.e. ~50 portfolio holdings and 50% or more weight in the top 10 holdings. Investors may not want to follow hedge fund managers whose portfolios are either too diversified or too concentrated.
More details about “50–50” characteristics are explained in the answer to question #2.
From starting HedgeMind, what is the greatest thing you can share with us about hedge funds and what their holdings/filings might say?
The greatest things we discovered are the two most common hedge fund traits that top hedge funds share:
- Keep portfolio size at 30–80 holdings.
- Allocate 50% or more portfolio weight in their top 10 holdings.
These two traits can be easily observed in portfolios of David Tepper, Stanley Druckenmiller, Julian Robertson, Seth Klarman, Dan Loeb… and many more. They actually reflect two critical skill sets of hedge fund managers, stock selection and position sizing.
Do you have any recent examples that stand out? Maybe you saw a unique Hedge Fund filing that no one else really understood?
Two stock picks came to my mind immediately.
One is Stanley Druckenmiller’s massive $GLD bet last year when gold was still in a downtrend. One year later, he is proven to be correct. Now investors seem to be bullish on gold. We will watch closely how Druckenmiller does in the months to come.
Another one is Seth Karman’s huge bet on $KERX. He has accumulated a 59.21mln 42.53% stake since he initially acquired it in 2014 Q1 even as $KERX declined 40% in the past 12 months. Clearly he is not afraid betting it alone. Recently top value investor, David Abrams has also joined him to be a top holder. These value investors are long term players. They don’t bet so heavily without very good understanding of it long term fundamental values and potential. I will watch it closely.
Both stocks demonstrate hedge fund managers are willing to buy at a time when the stocks were not favored by the market and other investors may not really understand them.
Who is the most popular hedge fund manager on HedgeMind? Why do you think they are?
Top 5 most popular hedge fund managers among all hedgemind users:
Stanley Druckenmiller
Warren Buffett
Julian Baker (Baker Brothers)
Karen Finerman (a surprise, could be due to her role as co-host of CNBC Fast Money)
David Tepper
It is not surprising to see Druckenmiller, Buffett, and Tepper in the top. They are legends already and well-known to investors.
Stanley Druckenmiller who becomes the most popular among our users may be due to his bold long bet on gold last year as gold attracted a lot investor interest this year. Baker Bros by far is the most successful biotech hedge fund manager. In the past 12 mos, 4 of his top 10 holdings,$ANAC $DYAX $PCYC $GEVA, have been acquired by big pharma. This is not by sheer lucky. It is the #1 most followed biotech hedge fund on HedgeMind. Big surprise to me is Karen Fireman but I probably shouldn’t be. She is probably the most visible hedge fund manager to some investors who may only know.
Top 5 most followed hedge fund managers among our subscribers:
Warren Buffett
Carl Icahn
Joseph Edelman
David Einhorn
Stanley Druckenmiller
If you were to recommend three hedge fund managers for people to follow, who would they be?
If I could only suggest three hedge fund managers to follow, then they would be:
Chase Coleman, Tiger Global
Julian Baker, Baker Bros
Zach Schreiber, Pointstate Capital
They are the young and active hedge fund managers with great success. As Stanley Druckenmiller said, they are legends to be. They are among my personal favorite. Many of my current stock holdings are from them.
