This morning I came across this chart from Goldman Sachs via the website of online Aussie brokerage Stake.com.au that offers free brokerage for anyone wanting to buy US shares. Buying US stocks is an investing strategy I'd recommend as there's zero doubt the world's best growth companies are in the U.S. not Australia.
The aforementioned chart from Goldmans reveals the 50 most common long positions among the largest U.S. hedge funds.
Given Wall Street's hedge funds are regarded as the 'Masters of the Universe' with their 'beat on the street' and whip smart analysts, let's take a look at the hedge funds' top 10 long positions in ascending order according to Goldmans.
Amazon Inc – no surprise here, but what many investors may not know is that Amazon's cloud business, Amazon Web Services (AWS), is now driving its growth far more than the online shopping business. In fact some analysts are tipping AWS alone to have a $1 trillion valuation one day, which suggests Amazon may grow for a long time yet. It looks a buy to me.
Facebook – is widely fancied by hedge funds and it's not hard to see why. Its key growth asset is Instagram and I expect it will grow bigger than 'Facebook blue' one day. Instagram also has potential to become a dominant online shopping platform that every retailer will have to use. I expect Facebook's powerful network effects will see its valuation double over the next 2-4 years.
Microsoft – is another business storming higher on the back of its successful and fast-growing cloud business, while readers will also likely use some of its online products such as Excel or email server Outlook.
Alphabet – is the owner of the Google search engine, Youtube, Google Maps, Gmail, Verily, and Waymo (self driving cars) among hundreds of other tech-focused business interests. You'd have to be insane to not want a slice of this business given its long-term growth prospects and current valuation.
Apple – is another stock that looks a buy to me, despite some growing concerns over the impact of an escalating US / China trade war. For now these concerns are probably justified, but only if the US / China tensions escalate further.
Alibaba – is not your local kebab shop, it's China's largest internet company and is growing like nuts. It owns online shopping forums Taobao and Tmall and is also investing heavily in cloud computing. Given its dominant market position and China's population of 1.38 billion people you can see why investors like it.
Netflix – is the online streaming service that has probably produced the strongest gains of any large-cap digital stock over the past 10 years. Its phenomenal success in growing subscribers globally has shocked many on Wall Street, however, it does carry a lot of debt with competition rising.
Celgene – is the $68 billion market-leading cancer therapy company that is growing nicely on the back of it success in the oncology space. Moreover, I expect some hedge funds feel if one company is going to deliver the Holy Grail of an innovative treatment for cancer via gene or immunotherapy for example (rather than chemotherapy) its Celgene. Clearly, any company that delivers a real deal new cancer treatment would probably become the world's most valuable business overnight.
Visa – is another business I think is a buy given the move to wireless payments (rather than using a PIN or sticking your card in a machine) is only just getting going globally. In fact Australia and the UK are the two leading markets for wireless payments, with the rest of the world including the U.S. miles behind. As such, I think Visa and its 'war on cash' will deliver handsome returns for investors.
PayPal – is the online payment company that lets users link their cards and bank accounts to its platform to make online payments faster and more secure.
Walt Disney – is the movie, entertainment and theme parks business that recently acquired 21st Century Fox and is also launching a streaming service to rival Netflix or Apple's push into online streaming for example.
Outlook
Anyone can see why these businesses are the hedge funds' favourites to own, but let's face it, their outstanding growth prospects are no secret and they're not going to shoot the lights out over the decade ahead.
In all honesty if you want to make the eye-watering returns in the share market you have to find the Microsofts and Amazons of tomorrow not today.
In an article later today I'll name four US tech shares under the MOAT acronym that still have market caps around US$10 billion or lower with plenty of room to deliver blockbuster returns in the 10 years ahead.
Elsewhere, if you're determined to stick to Australia you might want to forget the likes of Telstra Corporation Ltd (ASX: TLS) or BHP Group Ltd (ASX: BHP) in favour of what could be tomorrow's blue chips.
In fact I personally believe that one of the companies named in the below report could fit the bill….
