(Reuters) - Hedge funds' love affair with technology industry darling Apple Inc has rewarded some managers so far this year but half the industry, having been less savvy with its bets, is limping behind with subpar returns, new research from Goldman Sachs shows.
Apple, a current favorite with prominent managers like David Tepper, Andreas Halvorsen and David Einhorn, again topped Goldman Sachs' current so-called VIP list which ranks the 50 stocks that matter most to the $2 trillion hedge fund industry.
Shares in the Cupterino, California-based maker of the iPhone, iPad and Macintosh computers have surged 27 percent this year, topping the 26 percent rise they recorded in all of 2011, and given some funds a nice boost in the first weeks of 2012.
Goldman found that 30 percent of hedge funds that rely on fundamental research to make their stock picks own Apple and that the stock, when ranked as one of a fund's top 10 holdings, now represents an average of 8 percent of total single-stock long equity exposure, the highest weighting in four years.
But the investment bank's analysts also underscored some potential pitfalls when managers pile into a handful of super popular stocks. "The high hedge fund ownership concentration strategy works in an upward trending market but tends to perform poorly in choppy or flat markets," Goldman analysts wrote.
Google, Microsoft, JPMorgan Chase and Qualcomm followed Apple as the hedge fund industry's five biggest favorites.
And while Apple's returns have helped power some managers ahead -- David Tepper's Palomino Fund climbed 6.1 percent in January, according to people familiar with his numbers -- not everyone has ridden the rally as successfully.
Indeed only 10 percent of the industry's more than 9,000 funds have returned more than 7 percent this year to beat the broader stock market and even the average stock mutual fund. Half of all hedge funds have generated returns hovering between down 2 percent and up 2 percent while the average fund has inched up 3 percent in the first six weeks of the year. The Standard & Poor's stock index gained 7 percent during that time.
"Despite finding success with their top picks, lack of net exposure to the cyclical rally has caused hedge funds to lag both the S&P 500 and the average large-cap mutual fund so far in 2012," Goldman said in its Hedge Fund Trend Monitor report.
These findings come at a time many large institutional investors like state pension funds, including North Carolina, are eager to put more money into these types of portfolios to help shore up lagging returns. Researchers at Deutsche Bank have projected that industry assets could reach a new record at $2.26 trillion this year.
Goldman analysts found that hedge funds turned slightly more bullish in the fourth quarter after a generally difficult year when fears over Europe's worsening debt crisis and slow growth in the United States sparked wild market movements that caught many managers off guard.
The average fund lost 5 percent in 2011 but declines were far steeper at some prominent funds. Industry analysts blamed crowding into the same names for some of those losses.
The research shows hedge funds had the biggest taste for consumer discretionary stocks, including names like Sears Holdings Corp and AutoNation Inc, while they underweighted industrial stocks.
Reporting By Svea Herbst-Bayliss, editing by Dave Zimmerman