Hedge Funds Are More Bullish On Tech Than They’ve Ever Been

Stock pickers at top hedge funds have never been so bullish on tech as they are right now, a recent Wall Street Journal article assured. According to Mark Connors, global head of prime services risk advisory at Credit Suisse, information technology holdings among long/short hedge-fund managers are at an all-time high; about 34% of their net bullish positions are placed in tech companies from the S&P 500, he assured. And, while he did not specify which firms were feeling the most bullishness, he did add that internet software and services companies were among the most liked.

However, the WSJ article continued, “tech doesn’t yet look crowded and vulnerable to a swift reversal.” Having said that, let’s take a look into these companies and what the funds in our database think about their tech bets.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

Alphabet Inc (NASDAQ:GOOGL)

– Number of Hedge Funds Long The Stock As Of June 30: 135

– Value of Hedge Funds’ Combined Holdings As Of June 30: $11.55 billion

Alphabet Inc (NASDAQ:GOOGL) saw 135 funds from our database holding class A shares and 126 funds holding shares of class C stock at the end of June, including Harris Associates, which declared holding 631,571 Class A (GOOGL) shares and 2.18 million Class C (GOOG) shares, as of the end of June. Also bullish was Ken Fisher’s Fisher Asset Management, which held 995,319 Class A shares and 455,315 Class C shares by the end of the second quarter. Alphabet Inc (NASDAQ:GOOGL) had a volatile first half of 2016, ultimately losing more than 9.5%. Over the second half, however, shares have recuperated by more 17%, taking year-to-date returns to over 6%. The tech behemoth has recently unveiled its new Pixel phones, Daydream View headsets, Google Wifi, Chromecast Ultra and the Google Home AI assistant, all of which will allow it to compete more directly with Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN).

Facebook Inc (NASDAQ:FB)

– Number of Hedge Funds Long The Stock As Of June 30: 148

– Value of Hedge Funds’ Combined Holdings As Of June 30: $15.24 billion

Next up is Facebook Inc (NASDAQ:FB) another very popular tech stock among the funds in our database, with 148 investors holding shares as of the end of June. Among its supporters were Andreas Halvorsen’s Viking Global, which held 20.14 million shares worth $2.3 billion and Stephen Mandel’s Lone Pine Capital with 10.94 million shares held at the end of the second quarter. Facebook Inc (NASDAQ:FB) has had a great year, with its stock up by 24% since January. A couple of days ago, Credit Suisse analyst Stephen Ju reaffirmed its price target on Facebook’s stock and boosted the price target to $170 from $154, pointing out that the stock is trading at 25 times and 20 times his forward 2017 and 2018 earnings, respectively. The analyst also mentioned the company’s “vastly superior” return on investment that advertisers obtain from Facebook in comparison with other platforms and he considers that consensus models don’t include the gains from Instagram, Messenger, and WhatApp.

Amazon.com, Inc. (NASDAQ:AMZN)

– Number of Hedge Funds Long The Stock As Of June 30: 145

– Value of Hedge Funds’ Combined Holdings As Of June 30: $19.82 billion

Amazon.com, Inc. (NASDAQ:AMZN) was the third most popular stock among the funds that we track, only trailing Facebook and Alphabet, with 145 investors holding shares at the end of June. Among the largest shareholders were Andreas Halvorsen’s Viking Global, which held 3.27 million shares by June 30, following a 5% reduction in its exposure, and Ken Fisher’s Fisher Asset Management, which disclosed ownership of 1.98 million shares, down 21% quarter-over-quarter. The stock has surged by more than 20% year-to-date and with the holiday season ahead, Amazon still has more room to grow. At the end of September, eMarketer released its forecast for the holiday season eCommerce sales, expecting a jump of 17.2%. More specifically, retail eCommerce sales are expected to amount to $94.71 billion, representing 10.7% of the total retail sales and Amazon is anticipated to increase its market share from the 25% it amassed last year.

Microsoft Corporation (NASDAQ:MSFT)

– Number of Hedge Funds Long The Stock As Of June 30: 131

– Value of Hedge Funds’ Combined Holdings As Of June 30: $18.81 billion

Among the firms that we track, Microsoft Corporation (NASDAQ:MSFT) counted 131 funds tracked by with long positions in its stock as of June 30, including First Eagle Investment Management, with 23.45 million shares, valued at roughly $1.2 billion by the end of the second quarter, and David Blood And Al Gore’s Generation Investment Management, which held 15.17 million shares of the tech behemoth. After a volatile year, Microsoft Corporation (NASDAQ:MSFT)’s stock has managed to return just 3.7% since January, underperforming the major U.S. stock indexes. Over the second half of 2016, however, shares have gained around 12%, largely on the back of strong fiscal fourth-quarter results posted on late-July. The company is expected to report its results for the fiscal first quarter on October 20 and analysts expect EPS of $0.68 and revenue of $21.71 billion, although investors will also watch for other metrics, particularly the performance of its Azure segment.

Apple Inc. (NASDAQ:AAPL)

– Number of Hedge Funds Long The Stock As Of June 30: 116

– Value of Hedge Funds’ Combined Holdings As Of June 30: $10.67 billion

Finally, there’s Apple Inc. (NASDAQ:AAPL), which saw the number of funds in our database long its stock drop by 13 during the second quarter. However, it remained one of the 10 most popular stocks among these firms, counting on the support of Warren Buffett’s Berkshire Hathaway, which last disclosed ownership of 15.22 million shares, or about $1.45 billion in stock, and Phill Gross And Robert Atchinson’s Adage Capital Management, with 7.46 million shares. Apple Inc. (NASDAQ:AAPL)’s stock had a tough first half, losing more than 9%. Over the second half, however, shares rebounded by 22.51% and are now trading around $117, versus its January levels around (or below) $105.00. Apple has recently confirmed that it will host an event on October 27, where the company is expected to release a new lineup of Macbooks and iMacs.

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.