Best Blue Chip Stocks: 21 Hedge Fund Top Picks

Thanks in part to their massive market capitalizations and deep liquidity, blue chip stocks are a natural home for hedge funds and other large pools of institutional capital.

Of course, not all blue chip stocks are created equal. And hedge funds, as a group, actually have a rather poor long-term track record vs the broader market. 

Still, there's something irresistible about knowing what the putative smart money has been up to. Besides, you've got to give hedge funds credit where credit is due.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Hedging strategies by definition limit upside when stocks are rising, which helps explain the industry's years of underperformance during the last bull market. By the same token, however, hedging strategies limit downside when everything is selling off.

And goodness knows investors saw plenty of red on their screens in 2022. After all, it was a historically bad year for equities.

"Despite the challenges from a bear market, hedge funds delivered resilient performance," notes Barclays Capital Solutions. "In a year when the MSCI World Index fell 18%, hedge funds captured only a fraction of the drawdown, thus offering the best downside protection since the dot-com bubble burst."

It's been an entirely different story for equities in 2023, however. The market is up – and hedge funds are back to their old underperforming ways.

The S&P 500 generated a total return (price change plus dividends) of 9.2% for the year-to-date through the end of April. By comparison, the Eurekahedge Hedge Fund Index delivered a total return of just 2.5% over the same time frame.

So why are hedge funds lagging so badly? A look at changes in their holdings can offer some insights.

We won't know how hedge funds are dealing with the current market environment until they disclose their second-quarter buys and sells in mid-August. But we do know what they were up to in Q1 thanks to a recent batch of regulatory filings.

As usual, hedge funds were heavily invested in most of the market's biggest and bluest of blue chip stocks – particularly Dow stocks. Indeed, 11 of the 21 names listed below are components of the blue-chip barometer.

That's partly a function of Dow stocks' massive market caps and attendant liquidity, which, as noted above, provide ample room for institutional investors to build or reduce large positions. Big-name blue chip stocks also carry lower levels of reputational risk for professional money managers. (It's a lot easier to justify holding a large stake in a Dow stock than a no-name small cap if restive clients start grumbling about their returns.)

Unfortunately, it looks as if too many hedge funds lightened up on some of the best blue chip stocks at precisely the time when they should have been buying with both fists. 

Probably the most glaring example of where hedge funds got it wrong in early 2023 is Apple (AAPL). The iPhone maker is the fourth most popular hedge fund holding, and yet hedge funds were collectively net sellers of AAPL stock to the tune of almost 33 million shares in Q1.

That's a shame, because Apple stock is soaring so far this year. It returned 27% in the first quarter alone. Hedge funds were also net sellers of Microsoft (MSFT) in Q1, a period in which MSFT stock gained 20%.

But enough with the armchair quarterbacking. Have a look at hedge funds' 21 top blue chip stock picks as of March 31, 2023 in the chart below.

Hedge funds' best blue chip stocks