On the back of the worst daily loss since mid-November, stocks were down again today, with the S&P 500 (SNPINDEX:^GSPC) losing 0.6%, while the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) lost 0.3%.

Reflecting those losses, the VIX Index (VOLATILITYINDICES:^VIX), Wall Street's fear gauge, gained nearly 4%, to close at 15.22 – its highest closing value since Dec. 31. (The VIX is calculated from S&P 500 option prices, and reflects investor expectations for stock market volatility over the coming thirty days.)

The ranking is in...
Last week was the deadline for professional money managers to file a list of their stock holdings at the end of the fourth quarter with the SEC. Since then, Goldman Sachs has crunched the numbers to determine the stocks that are most widely owned by hedge funds -- "smart money." Here is the ranking:


Number of funds with stock as a top 10 holding











Source: Goldman Sachs

Former ward-of-the-state AIG knocked Apple off its perch at the top of the ranking -- note that this is the first time in three years that Apple has not occupied the top spot. Apple's loss of popularity among hedge fund managers surely helps to explain the shares' awful performance in the fourth quarter, during which time they lost roughly a fifth of their value. (The decline is unabated this year, with the shares off another 16% year to date.)

Is this ranking useful for fundamentally oriented investors, as opposed to stock renters? Well, let's see how hedge funds' most popular stocks from the end of 2011 performed in 2011:


2012 Total Return

JPMorgan Chase









Microsoft Corporation


S&P 500


Source: Goldman Sachs, S&P Capital IQ

Of the top five hedge fund holdings at the end of 2011, two went on to out-perform the market last year (JPMorgan Chase, Apple), while three under-performed (QUALCOMM, Google, and Microsoft). Admittedly, one year isn't long enough to make strong judgments, but the "hedge fund popularity indicator" hardly look foolproof.

In fact, long-short equity hedge funds, as a group, underperformed the stock market in 2012. In this area, as in many others, quality trumps quantity. Rather than looking at which stocks show up in the portfolio of the greatest number of hedge funds, I'm more interested in what a small number of outstanding, value-driven hedge funds own/ have been buying. On that measure, AIG also scores highly this year – according to its 13-F, it was the sole U.S. stock added by the Baupost Group in the fourth quarter. For long-term, fundamentally oriented investors, that's a much more interesting clue.