The Sectors Hedge Funds Are Most Bullish And Bearish On To Start 2017

Keeping tabs on the stocks and sectors that hedge funds are buying and selling can provide solid guidence on where the smart money is headed.

In order to get the answer to that question, Benzinga caught up with Lex Liao, the Founder of HedgeMind, a site that collects and displays which stocks are getting the most play from hedge funds.

Liao's biggest takeaway was to note how bullish hedge funds were on energy and tech late in the year.

"The sector that got the most [hedge fund] money was energy. And that investment turned out to be correct now that OPEC agreed on a production cut. They were also bullish on technology, because in the third quarter a lot of people jumped out of the sector."

One of the tech outliers among hedge funds was Microsoft Corporation MSFT, which Liao pointed out has been on a nice run. Since the end of June the stock is up nearly 33 percent.

"Everybody has been buying, but the hedge funds actually sold quietly," he said. "The percentage of hedge funds owning Microsoft dropped from 17 percent to 15 percent in the quarter. Liao noted that Jeffery Rubin, Microscoft's largest holder, sold a third of his shares in the tech giant. He originally bought in 2012 when the stock was at $30.

Liao indicated that managers were the most bearish on healthcare, but also said to keep an eye on how biotech-focused funds play their picks in the coming year. "I encourage people to really follow biotech hedge fund managers because they probably know five or 10 times more than you know," said Liao. "That's the sector I think investors can gain the most from."

Aside from sectors, Lex Liao also singled out several individual funds that have gone long on certain smart stock picks, such as David Einhorn's 60 million share investment in late 2014 in Chemours Co CC, and Whiting Global's recent load up on energy stocks Southwestern Energy Company SWN, Cabot Oil & Gas Corporation COG, and Encana Corp ECA. 

"He is still holding them. If you are a long term investor, let hedge funds do the work for you," said Liao. "If they sell, you sell."

Photo Credit: Dave Center, Flickr