Are Hedge Fund Managers good or bad stock pickers? If you followed the Goldman Sachs Hedge Fund VIP Index Trust (GVIP), the answer would be, not very good. How can we make such a statement? Actually, it is pretty easy.

We have a technical rank (Erlanger Technical Rank) that tracks the return of a stock against the return of the S&P 500. GVIP tracks the top holdings of hedge funds that are primed at Goldman Sachs. Our technical rank tracks the return of a stock against the S&P 500 over the last 100 trading days, almost five months. Current Technical Ranks cover from the end of January through the end of June.

Only 13 stocks have a technical rank of 60% or higher which means they are beating the S&P 500. 12 names are ranked 50% which means that they are tracking the S&P 500. GVIP has 49 stocks in the ETF.  24 stocks are underperforming the S&P 500 which is roughly half the universe. Not good.

It is nice of Goldman Sachs to produce this ETF as we can use it to help understand our performance relative to the hedgies. Right now we would avoid names that are widely owned by Goldman Sachs managers and are underperforming as sooner or later they will be sold if they do not begin to rise. Buy names that are beginning to improve and could be subject to a short squeeze. Case in point, Capri Holdings (CPRI) is heavily shorted and ranks very weak technically. If it can turn around, then let the squeeze begin.

What is also interesting is that 28 of the 49 names have either moderate or heavy short selling. That means that hedge funds like to “eat their own” or they are cannibals. Hedge funds that buy a heavily shorted stock like Nextera Energy (NEE) are definitely making a bet that a short squeeze will ensue and enable them to make some nice money. As such, this GVIP is a great place to hunt for interesting long and short ideas.

GVIP has done well this year rising 15.51% but is very vulnerable here to a downturn as too many of the names are currently under distribution and might provide some good returns on the short side.

_______________
Geoff Garbacz is a principal at Quantitative Partners, Inc. and works with several independent research firms that work with buyside clients, financial advisors and institutional investors.