A Few Of Goldman’s Secret Portfolios Are Doubling The Market’s Returns So Far This Year

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There are perks to being one of Goldman Sachs’ (NYSE: GS) elite clients, and beating the market this year appears to be one of them.

The investment bank offers its clients 39 exclusive portfolios, almost all of which are beating the market this year.

Of the 39, 34 of these secretive portfolios are outperforming the broader market and three have achieved an 11% gain so far this year, which is more than double the S&P 500’s year-to-date (YTD) performance of 5.4%. 

Two of the best performing portfolios so far this year are the “high revenue growth,” and “high Sharpe ratio” baskets, according to a note to clients from Monday that discussed how the various portfolios are constructed and growth outlooks for the year ahead.

For its clients, Goldman has been picking stocks based on a variety of proprietary themes and sectors for a decade, and doesn’t disclose all of the member stocks in its baskets in its regular notes.

The “high revenue growth” basket is made up of the 50 companies in the S&P 500 that have the highest expected sales growth, according to Wall Street consensus. So far this year, this portfolio has returned 10.7%, and has returned 143% since it was developed in May 2011. Compare that to the S&P 500’s return of 137% since May 2011.

“This basket focuses on companies positioned to use top-line revenue generation instead of margins to drive bottom-line earnings,” wrote chief U.S. equity strategist David Kostin in the note.

Given that, it’s not much of a surprise that this group of stocks has done well this year as many companies struggle to drive sales in the midst of an emerging global economic slowdown.

Among the 50 stocks in the “high revenue growth” basket are companies including Align Technology (NASDAQ: ALGN), up 11% YTD, Amazon (NASDAQ: AMZN), also up 11% so far this year, Autodesk (NASDAQ: ADSK), which is up 13.5% YTD, and Netflix (NASDAQ: NFLX) which is up 27% YTD.

One of the other winning baskets so far this year—the “high Sharpe ratio” basket—includes companies like Assurant (NYSE: AIZ), which is up nearly 7% so far this year, Conagra Brands (NYSE: CAG), PVH Corp (NYSE: PVH), up 18.7% YTD, and Western Digital (NASDAQ: WDC), which is up 18.6% YTD.

For the Sharpe ratio—which measures a stock’s performance relative to its volatility—basket, Goldman looks at consensus price targets and six-month implied volatility.

“The inclusion of a risk metric has led to consistent outperformance on an absolute basis. The median stock in our basket offers almost double the expected return than the median S&P 500 stock with similar risk,” Kostin wrote.

The “high Sharpe ratio” portfolio has returned 11.5% so far this year, and 238.8% since it was created in December 2009.

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