Goldman Sachs said hedge funds and mutual funds – the two largest groups of investors – bought heavily into some of the same stocks last quarter in anticipation of a change in market leadership and rising volatility. According to regulatory filings, the Wall Street bank analyzed the holdings of 693 hedge funds (total equity positions of $2.8 trillion) and 554 mutual funds (total equity assets of $3.7 trillion) at the beginning of the third quarter. It then compiled a “hedge fund VIP basket,” consisting of the 50 most commonly held stocks among the 10 largest holdings by hedge funds, and a “mutual fund overweight basket,” consisting of the 50 most frequently held stocks by mutual funds. Composed of only stocks. Goldman Sachs found eight “common favorites” among hedge funds and mutual funds last quarter. These mutually favored stocks are up 17% year to date, in line with the broader market. Hedge funds and mutual funds overlap in their favor and historically outperform. Goldman Sachs said the basket of stocks has outperformed the S&P 500 in 61% of months since 2013, with annual gains of 3 percentage points. The list includes credit card giants Visa and Mastercard and building materials company CRH. Notably, Third Point's Dan Loeb owns Dublin-based CRH and said he likes companies in the “real world” that are attractively priced. Healthcare brand UnitedHealth and insurance company Progressive are also favorites among hedge funds and mutual funds. Insurance stocks have been rising of late as their profit prospects normalize and in some cases improve as the impact of the Covid-19 pandemic recedes. Overall, hedge funds and mutual funds cut their exposure to large-cap tech stocks at the end of the second quarter. Goldman Sachs found that the weighting of the so-called seven largest stocks in hedge funds' long portfolios fell for the first time since 2022. The shift in their positioning helped cushion the impact of the summer sell-off in these seven stocks. At the same time, Goldman Sachs said, both types of investors have increased their allocations to health care, which offers defensive and growth mostly unrelated to the artificial intelligence boom.