Goldman Sachs Group, Inc. (GS) vs. American International Group Inc (AIG): Which Do Hedge Funds Like More?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they were cutting their overall exposure, closing out some positions and doubling down on others. Let’s take a look at the hedge fund sentiment towards Goldman Sachs Group, Inc. (NYSE:GS) to find out whether it was one of their high conviction long-term ideas.

Goldman Sachs Group, Inc. (NYSE:GS) was in 63 hedge funds’ portfolios at the end of the third quarter of 2015. GS investors should be aware of a decrease in hedge fund sentiment recently. There were 67 hedge funds in our database with GS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as American Express Company (NYSE:AXP), Diageo plc (ADR) (NYSE:DEO), and Honeywell International Inc. (NYSE:HON) to gather more data points.

To the average investor there are many formulas shareholders employ to grade publicly traded companies. Some of the less utilized formulas are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the top money managers can beat the broader indices by a solid margin (see the details here).

Now, we’re going to take a gander at the new action encompassing Goldman Sachs Group, Inc. (NYSE:GS).

How are hedge funds trading Goldman Sachs Group, Inc. (NYSE:GS)?

Heading into Q4, a total of 63 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 6% slide from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or had already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the largest position in Goldman Sachs Group, Inc. (NYSE:GS). Berkshire Hathaway has a $1.90 billion position in the stock, comprising 1.5% of its 13F portfolio. On Berkshire Hathaway’s heels is Greenhaven Associates, managed by Edgar Wachenheim, which holds a $577.4 million position; 11.5% of its 13F portfolio is allocated to the stock. Other peers with similar optimism encompass Boykin Curry’s Eagle Capital Management, Richard S. Pzena’s Pzena Investment Management, and Cliff Asness’ AQR Capital Management.

Because Goldman Sachs Group, Inc. (NYSE:GS) has experienced falling interest from the smart money, we can see that there was a specific group of hedgies that slashed their full holdings in the third quarter. Intriguingly, Robert Pohly’s Samlyn Capital sold off the largest position of all the hedgies tracked by Insider Monkey, comprising about $106.4 million in stock, and Jim Simons’ Renaissance Technologies was right behind this move, as the fund cut about $44 million worth of shares. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Goldman Sachs Group, Inc. (NYSE:GS) but similarly valued. We will take a look at American Express Company (NYSE:AXP), Diageo plc (ADR) (NYSE:DEO), Honeywell International Inc. (NYSE:HON), and American International Group Inc (NYSE:AIG). This group of stocks’ market caps are similar to GS’s market cap.

As you can see these stocks had an average of 54.25 hedge funds with bullish positions and the average amount invested in these stocks was $6.75 billion. That figure was $5.57 billion in GS’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand Diageo plc (ADR) (NYSE:DEO) is the least popular one with only 25 bullish hedge fund positions. Goldman Sachs Group, Inc. (NYSE:GS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AIG might be a better candidate to consider for a long position.