Follow Robinhood traders? Amateurs' favorite stocks are beating hedge fund picks, Goldman says

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Luis Alvarez

(This story is for CNBC Pro subscribers only.)

Retail investors are giving Wall Street pros a run for their money during the market comeback, with the amateurs’ top picks outperforming those of hedge funds, according to Goldman Sachs. 

Goldman compiled a portfolio of popular stocks among retail investors and the basket of equities is up 61% since the depths of the bear market in March. Goldman’s hedge fund basket is only up 45% in the same period. 

“The narrative of Main Street weakness vs. Wall Street asset inflation is misleading,” Goldman Sachs chief U.S. equity strategist David Kostin said in a note to clients on Sunday. 

A flood of new retail investors into brokers like Robinhood, Charles Schwab and TD Ameritrade, alongside the market’s major rebound from the depths of its March low has developed into a popular narrative that new retail traders are driving some of the rally. Robinhood said it saw a historic 3 million new accounts in the first quarter, while stocks experienced their fastest bear market and worst first quarter on record. Zero commissions, fractional trading and a lack of sports have also driven some young investors into the market. 

Goldman said that the companies popular with the amateurs traders are sharply outperforming hedge funds and mutual funds since the market bottom. The retail investor list is made up on many of the stocks most effected by the pandemic like airlines, casinos and cruise lines. 

“The surge in retail trading activity has amplified the market rotation toward cyclicals and value stocks,” added Kostin. “Improving virus and activity data pushed investors toward cyclicals, small-caps, and other economically-sensitive, low-multiple stocks.”

One of the most popular stocks among retail investors is Penn Nation Gaming, which owns a stake in Barstool Sports. The Boston-based sports blog founder and CEO Dave Portnoy, recently picked up day trading in the absence of sports. Penn National Gaming’s stock is up 184% since March 23. 

Coronavirus vaccine hunter-Moderna and Elon Musk-led Tesla are also among the top picks. Shares of Tesla are up nearly 125% and shares of Moderna are up 127% since the March lows. 

There is disagreement on Wall Street on the effect of and performance of amateur traders speculating in the market. Barclays said Friday net, net the top Robindhood picks are underperforming, the firm’s analysis shows.

— with reporting from CNBC’s Michael Bloom. 

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