Best Blue Chip Stocks: 21 Hedge Fund Top Picks
Blue chip stocks dominate the list of hedge funds' most popular equity investments.
Blue chip stocks, thanks to their massive market capitalizations and deep liquidity, are a natural home for hedge funds and other large pools of institutional capital. And since hedge funds are the putative smart money, who wouldn't want to know which blue chip stocks they're chasing with their capital?
True, hedge funds collectively have a rather poor long-term track record vs the broader market. It should also go without saying that not all blue chip stocks are created equal.
Yet there's still something irresistible about knowing what hedge funds have been up to. And even if the industry tends to generate disappointing returns, you've got to give it credit when credit is due.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Big-time investors are willing to pay up for complicated strategies offering exposure to uncorrelated assets. So it's not necessarily possible to tell from the outside if a hedge fund is providing its clients with the performance they expect. It's also important to know that hedging strategies by definition limit upside when stocks are rising. That helps explain the industry's tendency to underperform in a bull market.
By the same token, however, hedging strategies limit downside when everything is selling off. And goodness knows investors saw plenty of red on their screens in 2022.
"Despite the challenges from a bear market, hedge funds delivered resilient performance," notes Barclays Capital Solutions. "In a year when the MSCI World Index fell 18%, hedge funds captured only a fraction of the drawdown, thus offering the best downside protection since the dot-com bubble burst."
Blue chip stocks: timing is everything
It's been an entirely different story for equities since the new bull market took off. Equities are on fire – and hedge funds are back to their old underperforming ways.
The Eurekahedge Hedge Fund Index delivered a total return (price change plus dividends) of 5.8% for three months ended January 31. The S&P 500, by comparison, generated a total return of 16%.
So why are hedge funds lagging so badly? As noted above, hedging strategies can limit upside in rising markets. That doesn't let hedge funds off the hook entirely, however. A look at changes in their holdings can offer some insights too.
We won't know how hedge funds are dealing with the current market environment until they disclose their first-quarter buys and sells in mid-May. But we do know what they were up to in Q4 thanks to a recent batch of regulatory filings.
As usual, hedge funds were heavily invested in most of the market's biggest and bluest of blue chip stocks – particularly Dow Jones stocks. Indeed, 12 of the 21 names listed below are components of the blue-chip barometer.
That's partly a function of Dow stocks' massive market values and attendant liquidity, which, as noted, provide ample room for institutional investors to build or pare large stakes. Big-name blue chip stocks also carry lower levels of reputational risk for professional money managers. It's a lot easier to justify holding a large stake in a Dow stock than a no-name small cap if restive clients start grumbling about their returns.
Besides Dow stocks, hedge funds, as per usual, chased many of the market's hottest Q4 names. Probably the best example of this is the sudden appearance of Eli Lilly (LLY) on the list of hedge fund favorites in the third quarter of last year. LLY was back again in Q4, but this time hedge funds were net sellers. Shares in the pharmaceutical giant more than doubled over the past 52 weeks thanks to Zepbound, Lilly's obesity treatment with blockbuster potential.
Interestingly, Amazon.com (AMZN) was the top hedge fund stock that saw the greatest net change in share ownership – and for a second consecutive quarter at that. Amazon stock joins the Dow Jones Industrial Average at the end of February.
Hedge funds were also net sellers of some of the hottest Magnificent 7 stocks in Q4, lightening up their exposure to Microsoft (MSFT), Google parent Alphabet (GOOGL) and Facebook parent Meta Platforms (META).
But enough with the armchair quarterbacking. Have a look at the chart below to see hedge funds' 21 top blue chip stock picks as of the end of Q4.
Company (ticker) | Number of hedge funds holding | Net change in hedge fund share ownership |
---|---|---|
Microsoft (MSFT) | 859 | -9,904,525 |
Amazon.com (AMZN) | 792 | 25,922,202 |
Alphabet (GOOGL) | 714 | -26,228,871 |
Apple (AAPL) | 665 | 16,494,284 |
Meta Platforms (META) | 664 | -6,565,755 |
Nvidia (NVDA) | 622 | 436,067 |
Visa (V) | 584 | -11,346,255 |
Berkshire Hathaway (BRK.B) | 538 | 2,103,322 |
JPMorgan Chase (JPM) | 532 | -66,710 |
Exxon Mobil (XOM) | 505 | 24,741,046 |
Johnson & Johnson (JNJ) | 502 | 7,886,681 |
Mastercard (MA) | 498 | -3,665,466 |
UnitedHealth Group (UNH) | 491 | -1,945,177 |
Merck (MRK) | 483 | 5,872,917 |
Eli Lilly (LLY) | 460 | -554,438 |
Chevron (CVX) | 453 | 3,744,455 |
Procter & Gamble (PG) | 448 | 829,378 |
AbbVie (ABBV) | 444 | 4,300,492 |
Home Depot (HD) | 442 | -2,186,435 |
Bank of America (BAC) | 438 | 22,399,513 |
Salesforce (CRM) | 434 | -1,042,621 |
Source: WhaleWisdom and the Securities and Exchange Commission.
Related Content
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
-
Stock Market Today: Nasdaq Soars on Strength in Magnificent 7 Stocks
The main indexes started the week strong after several mega-cap stocks rallied.
By Karee Venema Published
-
Target Limits Self-Checkout To 10 Items
Target launches new self-checkout lanes on heels of a new paid membership plan and expanded brand offerings.
By Jamie Feldman Published
-
Stock Market Today: Nasdaq Soars on Strength in Magnificent 7 Stocks
The main indexes started the week strong after several mega-cap stocks rallied.
By Karee Venema Published
-
Stock Market Today: Stocks Close Lower as Tech Shares Slump
Weakness in several Magnificent 7 stocks created headwinds for the main indexes Friday.
By Karee Venema Published
-
Stock Market Today: Stocks Swing Lower as Chipmakers Slump
The main indexes erased an early lead Thursday as several semiconductor stocks sold off.
By Karee Venema Published
-
Stock Market Today: Stocks End Mixed Ahead of Retail Sales, PPI
Stocks took a breather Wednesday as investors looked ahead to tomorrow's inflation data.
By Karee Venema Published
-
Stock Market Today: S&P 500 Nabs New Record Close After February CPI
Strong gains for Oracle and Nvidia helped the main indexes brush off hotter-than-anticipated inflation data.
By Karee Venema Published
-
Stock Market Today: Stocks Struggle Ahead of February CPI Report
The main indexes had trouble getting off the ground Monday as Wall Street waits for tomorrow's inflation update.
By Karee Venema Published
-
Stock Market Today: Stocks Go Into Reverse as Nvidia Slumps
The main indexes were initially higher after the release of the February jobs report, but ended well off their session highs.
By Karee Venema Published
-
Stock Market Today: Nasdaq Soars as Magnificent 7 Stocks Rally
A strong day for the all but one of the Magnificent 7 stocks fueled upside in the main indexes.
By Karee Venema Published