Goldman Sachs is seeing a new revival in hedge funds and thinks they could end the year on a high note after a boost from stocks that reacted positively to developments in the trade war between the U.S. and China.

“Hedge fund favorites have rallied sharply so far (in the fourth quarter),” Goldman Sachs strategists Ben Snider and David Kostin wrote in a Monday note to clients.

But these funds still have some work to do. While Goldman’s list of most popular hedge fund long positions is beating the S&P 500 by 200 basis points since the start of the fourth quarter in October, they are still behind the index by about 4% for the year.

Goldman’s records show the average equity hedge fund’s returns are at 10% year-to-date.

The strategists think there is still a risk of crowding, where stocks experience an exaggerated decline after too many funds sell off shares following a stock’s peak.

Here are some points from Goldman’s report that broke down 833 hedge funds’ 13-F filings that were submitted on Nov. 14, per Bloomberg:

  • The number of funds holding Inc. as a top-10 position dropped to 78 from 95
  • Names that are new on the list of 50 stocks appearing most frequently in the top-10 holdings of hedge funds include Fiserv Inc., Global Payments Inc. and KKR & Co.
  • Funds are selectively adding cyclical exposure, with industrials now at the largest net overweight tilt since 2008; health care remains the largest overweight

“Funds slightly increased their exposure to cyclical stocks (in the third quarter), but remain much less exposed to cyclicals than they have usually been in the past,” Goldman wrote in its note. “Funds also increased their allocations to firms exposed to U.S.-China trade during the third quarter as the stocks priced rising optimism regarding a potential trade deal.”

However, Goldman hasn’t seen the hedge funds tap into value shares that are outperforming, though. Being so overweight in health-care stocks shows the funds also aren’t worried about policy change heading into the 2020 election. The Trump administration has been pushing to reduce prescription drug prices for seniors, but it could take some time for legislation to pass amid the ongoing impeachment inquiry.

“Funds have embraced some macro rotations but resist others,” Goldman said.