Best Blue Chip Stocks: 21 Hedge Fund Top Picks

Thanks in part to their massive market caps 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 have seen plenty of red on their screens recently.

Consider 2022, when hedge funds earned their keep during a truly dismal year for equities. The Eurekahedge (opens in new tab) Hedge Fund Index delivered a total return (price appreciation plus dividends) of -4.8% last year. The S&P 500, meanwhile, generated a total return of -18.1%.

In other words, in the worst year for U.S. stocks since the Great Financial Crisis, hedge funds beat the broader market by almost 14 percentage points. 

We won't know how hedge funds are dealing with the current market selloff until they disclose their first-quarter buys and sells in mid-May. But we do know what they were up to in Q4, thanks to a recent batch of regulatory filings.

It turns out that much of what they were up to involved the large-scale dumping of the market's biggest and best-known blue chip stocks. "Funds played defense in 2022," notes Goldman Sachs strategist Ben Snider. 

Be that as it may, hedge funds, as always, remain heavily invested in most of the market's biggest and bluest of blue chip stocks – particularly Dow stocks.

That's partly a function of Dow stocks' massive market capitalizations and attendant liquidity, which, as noted above, creates ample room for institutional investors to build or pare large positions.

Big-name blue chip stocks also carry a lower level of reputational risk for professional money managers. (It's a lot easier to justify holding a large position in a Dow stock than a no-name small-cap if restive clients start grumbling about their returns.)

It also happens to be the case that almost half these names are not in the famed blue chip barometer. A few of these picks might even surprise you. 

Have a look at hedge funds 21 top blue chip stock picks as of Dec. 30, 2022 in the chart below. Note that defense did indeed prevail in Q4. Only four names saw a positive net change in share ownership by hedge funds.