Q4 2022 Filings Insights
Little guys are big winners; why Meta might be a better bet than Microsoft
Top 10 Names in the Hedge Fund Universe
Microsoft might have a sentient chatbot, but investors appear to have lost some confidence in the sentience of the executive suite.
The top three hedge fund favorites all declined by position size over the fourth quarter of 2022, according to 13F filings. They are all in the Tech sector. Microsoft, which has been the runner-up to Apple for quite some time, could soon be losing its No. 2 perch, having slipped from 2.10% of hedge funds’ cumulative holdings to 1.91%. Both Apple and third-ranked Alphabet also dipped in position-size terms. In fact, Apple and Alphabet did far worse than Microsoft in terms of market value loss: Apple dropped from $143.1 billion held by hedge funds to $135.8 billion, while Google’s parent fell from $48.9 billion to $44.5 billion. Microsoft took a comparable trim as it dipped from $58.8 billion to $56.5 billion.
Meantime, Tech-adjacent Amazon plummeted from fourth place to eighth, as it declined from 1.35% of hedge fund holdings to 0.98%.
Moving ahead of it was oil company Chevron, which improved from 0.97% to 1.10% of hedge fund holdings, Consumer Staples play Coca-Cola, up from 0.95% to 1.01%, and two Financial Services names: Bank of America rose from 1.28% to 1.32% and Visa went from 0.97% to 1.07%.
Rounding out the Top 10 were little-changed American Express and Unitedhealth Group. All in all, the fourth quarter’s Top 10 names were exactly the same as the third quarter’s. If not for Amazon’s decline and Chevron’s surge, there’d have been no change in rank order.
If you're looking for more insights from top hedge funds as well as aggregate trends, take a look at our Hedge Fund Ownership dashboard.
Managers in the News
Ken Griffin
Citadel founder Ken Griffin is generating headlines for exactly the reasons a hedge fund manager wants to: for making money.
Specifically, Citadel proved to be the best-performing hedge fund of 2022, according to LCH Investments. The $16 billion it gained last year knocked perennial leader Bridgewater, which earned $6.2 billion, off the top. Fueling the growth at Citadel was the 38% return on its flagship Wellington portfolio. It accomplished this despite the headwind all hedge funds experienced in 2022.
“The 20 best performing hedge fund managers earned $22.4 billion for investors in 2022, marking their slimmest gains since 2016,” according to Reuters. They “made less than half of the $65.4 billion the group returned in 2021 when rising stock prices led to a record return.”
Griffin is, by all accounts, a natural at this. While he was still a high schooler in Boca Raton, Fla., he sold educational software out of his house. When he got to college—Harvard, of course—he started investing in put options, which was a great place to be when the stock market tanked in 1987. After mentoring Griffin for a year at his Glenwood Capital firm in Chicago, Frank Meyer helped him spin off what would become Citadel. It made a 43% return in its first year and, in 2003, the 34-year-old became the youngest member of the Forbes 400 with a personal net worth of $650 million.
His tenure has not been without controversy. There was at least the appearance of a conflict of interest during 2021’s “meme stock” scandal. Citadel was accused of simultaneously making the market in GameStop and participating in it. Fortunately for Griffin, though, there’s no legally defined conflict between donating to sitting members of the House Financial Services Committee and testifying before them.
Ultimately, he wasn’t held responsible for any misdeeds with GameStop, unless you want to count outsmarting everyone else on Wall Street. If you doubt that he’s a smart guy, remember that the University of Chicago’s Department of Economics—you know, the literal “Chicago school” where Milton Friedman lectured—is now known as the Kenneth C. Griffin Department of Economics. He’s also known for his donation to his alma mater—Griffin’s $150 million contribution to Harvard’s Financial Aid office is the largest it ever received. And, while he is an avowed Republican, he has also donated to the Obama Foundation. For extra credit, he spent $43.2 million outbidding a band of crypto bruhs to acquire the last privately held copy of the U.S. Constitution, putting it on public display.
Next month, let’s take a look at Aragon founder Anne Dias, who has the distinction of being the former Anne Dias-Griffin and is a financial powerhouse in her own right.
Meantime, you can explore Citadel on the Novus Platform for free through the end of the quarter on our Manager Analysis Insights Dashboard.
Said Haidar
One alumnus of the aforementioned Kenneth C. Griffin Department of Economics is a little-known manager of the even lesser-known Haidar Capital Group. Said Haidar spun his eponymous fund out from Credit Suisse 25 years ago and was generally successful. Until this past year. Now he’s massively successful.
“Said Haidar’s conviction that inflation was about to explode across the globe can be summarized by a single number: $63 billion. That’s how much his Haidar Capital Management reported in assets to start 2022,” according to Bloomberg. “The catch? The hedge fund actually oversaw just $1.2 billion. That copious leverage led to a tumultuous year—one month the fund was up 54%, another it was down 20% — but ultimately paid off, producing a 193% return for investors.”
As a result of his macroeconomic prescience, Haidar ended 2022 as America’s sixth best-earning hedge fund manager. Griffin came in first. The heads of Point72, Millennium, Renaissance Technolgies, and D.E. Shaw—the usual suspects— followed. Considering that Haidar Capital’s assets under management are an order or two of magnitude lower than these powerhouses is what sets its founder apart. His personal take-home pay was an estimated $859 million last year.
General Trends
Looking for Alpha in Alphabet
Position size seems to be correlated to security contribution to alpha, but not as tightly as you might think. The below table is pulled from a list of the top 50 securities in the HFU with the highest market value; it shows the stocks from this list that outperformed the S&P 500 in terms of contribution to portfolio results:
The most striking feature of this table is that the best-contributing security is social media monster Meta Platforms which, for the past six months, has been bubbling under the Top 10 names in the hedge fund universe. Apple, hedge funds’ most widely held stock, is a close rival though. In terms of total return, though, Meta beats Apple by a mile, despite the device maker’s market and sector contributions providing much higher contribution.
Apple’s position raises the question, though: What about hedge fund managers’ other perennial favorites, Alphabet and Microsoft? In terms of year-to-date total returns, they’re both in the 6.0%-6.5% range. In terms of security contribution, they come up far shorter. Alphabet’s negative alpha comes to 3.77 bps, to which Microsoft responded “Hold my beer!” and posted a 10.44 bps security contribution.
Honorable mention goes to chip maker Nvidia, which has returned a world-beating 59.38% despite being a second-tier contributor.
SVB’s Fallout Lands on Hedge Funds
So who exactly are these investors who are on the hook for Silicon Valley Bank’s liquidation? It won’t surprise you to hear that almost half the bank’s equity is—sorry, was—held by hedge funds or hedge fund-adjacent investment advisors.
The Vanguard Group owned more than 11% of SVB, holding it mainly in its total stock market, mid-cap, and S&P 500 index funds. State Street is exposed to more than 5% of the failed bank.
The most exposed pure-play hedge fund manager is Two Sigma Investments, which owned almost 2% of SVB equity. We’ll know a lot more when Q1 filings get released—stay tuned.
Where Are Hedge Funds Finding Alpha?
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