- RBC's Lori Calvasina tracked the top holdings of hedge funds at the end of the first quarter and found that many were playing defense with investments in mega-cap growth stocks.
- Those hedge fund favorites have held up better than the rest of the market this year, and some have been outperformers since stocks began to rally in late March.
- Here is a group of 11 tech, communication, and healthcare stocks that are popular with hedge funds and are outperforming over both of those time periods.
- Visit Business Insider's homepage for more stories.
Wall Street terms like "growth stocks" and "defensive stocks" are thrown around so much it's easy to assume they have static meanings everyone agrees on.
RBC Capital Markets has some evidence that the most successful growth stocks in recent history have become the defensive stocks of today. It's a shift being driven by some of the world's biggest investors, and it's one reason a number of mega-cap internet and tech companies performed well when the market plunged in February and March.
Many of those companies are represented in a group that Lori Calvasina — the head of US equity strategy at RBC — calls the "hedge fund hot dogs." They're the companies that had the most money invested in them at the end of the first quarter by the 342 hedge funds whose holdings RBC has examined.
"The 2020 resilience of the Hot Dogs is a testament to the transition of (technology, internet, media, and telecom) into a defensive trading vehicle in the US equity market and the strong faith that many US equity investors continue to have in the secular growth theme," she wrote in a note to clients.
Those stocks struggled compared to the rest of the market as recently as 2018, but this year the group has held up well during both the downturn and the recovery. The largest hedge fund holdings have outperformed the benchmark S&P 500 by 10%, which puts them on pace for their best relative result since 2013.
"They recently hit a new all time high vs. the S&P 500, and have outperformed in both the February-March drawdown and the March-May rebound," Calvasina wrote.
These are 11 stocks drawn from that group of favorites. Each is owned by a large percentage of the funds Calvasina surveyed. They are all beating the market in 2020, and are also outperforming since March 23, the day the stock market hit its recent low.
They're ranked from lowest to highest based on how much they've outperformed the S&P 500 from that date through May 18.
11. Fidelity National Information Services
Ticker: FIS
Sector: Information technology
Funds owning: 22%
2020 relative return: 6.6%
Relative return since market low: 1.1%
Source: RBC Capital Markets
10. Johnson & Johnson
Ticker: JNJ
Sector: Healthcare
Funds owning: 15%
2020 relative return: 11.8%
Relative return since market low: 3.4%
Source: RBC Capital Markets
9. Charter Communications
Ticker: CHTR
Sector: Communication services
Funds owning: 18%
2020 relative return: 15.3%
Relative return since market low: 3.6%
Source: RBC Capital Markets
8. Microsoft
Ticker: MSFT
Sector: Information technology
Funds owning: 42%
2020 relative return: 39.9%
Relative return since market low: 4.0%
Source: RBC Capital Markets
7. Bristol-Myers Squibb
Ticker: BMY
Sector: Healthcare
Funds owning: 12%
2020 relative return: 7.7%
Relative return since market low: 5.0%
Source: RBC Capital Markets
6. Apple
Ticker: AAPL
Sector: Information technology
Funds owning: 19%
2020 relative return: 3.3%
Relative return since market low: 8.4%
Source: RBC Capital Markets
5. Visa
Ticker: V
Sector: Information technology
Funds owning: 25%
2020 relative return: 10.4%
Relative return since market low: 9.0%
Source: RBC Capital Markets
4. AbbVie
Ticker: ABBV
Sector: Healthcare
Funds owning: 13%
2020 relative return: 11.9%
Relative return since market low: 9.8%
Source: RBC Capital Markets
3. Mastercard
Ticker: MA
Sector: Information technology
Funds owning: 20%
2020 relative return: 5.7%
Relative turn since market low: 10.6%
Source: RBC Capital Markets
2. Facebook
Ticker: FB
Sector: Communication services
Funds owning: 33%
2020 relative return: 12.0%
Relative return since market low: 11.9%
Source: RBC Capital Markets
1. UnitedHealth Group
Ticker: UNH
Sector: Healthcare
Funds owning: 18%
2020 relative return: 8.4%
Relative return since market low: 18.5%
Source: RBC Capital Markets