The recent volatility in the markets seems to have had a negligible impact on gaming industry stocks. Whereas stocks from other industries are hitting 52-week lows, a lot of gaming stocks are still trading near their all-time highs. The sector got a major boost last week when Activision Blizzard, Inc. (NASDAQ:ATVI) was added to the S&P 500 index. With all this fueling the rise of investors’ interest in the sector, we at Insider Monkey decided to look into the 13F data for the reporting period of June 30, as submitted by the over 730 hedge funds that we track, to identify the most beloved gaming stock among hedge funds. Though our revelation of the top three gaming stocks on which the smart money is betting might not surprise someone who keeps track of the sector, as there are relatively few heavyweight game developers that are publicly-traded, it may end up being helpful to those readers/investors who are thinking about investing in this sector for the first time.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last three years and outperformed the S&P 500 Index by over 60 percentage points (see the details here).
3. Take-Two Interactive Software, Inc. (NASDAQ:TTWO)
Investors with Long Positions (as of June 30): 40
Aggregate Value of Investors’ Holdings (as of June 30): $877 Million
Shares of Take-Two Interactive Software, Inc. (NASDAQ:TTWO) saw a decent jump in May when the company reported its fiscal 2015 fourth quarter results. Primarily due to the spike on that day, the stock ended the second quarter up by 8.3%. The strong quarterly results also seem to have helped the stock gain popularity among hedge funds during the quarter, as the number of hedge funds that held a stake in the gaming company went up by six and the aggregate value of hedge funds’ holdings went up by 32% during that period. Last Friday, the stock of the company made another good up move on news that Lions Gate Entertainment Corp. (USA)(NYSE:LGF) is teaming up with Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s wholly-owned subsidiary 2K and other companies to make the super hit game Borderlands, which was published by 2K, into a tent-pole movie. Curtis Macnguyen‘s Ivory Capital (Investment Mgmt) was among those hedge funds that initiated a stake in Take-Two Interactive Software, Inc. (NASDAQ:TTWO) during the second quarter; it held over 4.0 million shares of the company as of the end of June.