The writing was kind of on the wall at the end of March. S&P 500 Index was near the 4600 level whereas inflation rate was close to 8% and the 10-year Treasury yield jumped to 2.7%. The probability of further increases in interest rates and sharp declines in the stock market was much larger than the probability of further gains in stock prices. So, we started telling our premium subscribers to short the market at the end of March. Most hedge funds interpreted the macro developments the same way we did and reduced their exposure. The total value of stock holdings in hedge funds’ portfolios went down from $3.1 trillion at the end of December to $2.8 trillion at the end of March.
This isn’t a terribly large reduction in market exposure, but it is still a reduction. It still shows that hedge funds have a slight edge in market timing.
Insider Monkey has long been a believer of imitating the top stock picks of hedge funds, and this approach has helped us beat the market on average over the last several years. For instance, between March 2017 and April 2022 our monthly newsletter’s stock picks returned 159.9%, vs. 89.8% for the SPY. Our stock picks outperformed the market by 70 percentage points.
We don’t talk much about our monthly newsletter’s stock picks publicly, but we have been sharing the list of 30 most popular stocks among hedge funds here at Insider Monkey since the end of 2018. The majority of these stocks aren’t traditional value stocks. You can check out the latest list of the 30 most popular hedge fund stocks here. You can also check out our three previous articles about the 30 most popular hedge fund stocks at the end of 2021, 2021 Q3 and 2021 Q2 here.
Overall, hedge funds’ top 5 stock picks returned 29.6% in 2021 and beat the market by 3.6 percentage points. From 2014 through the end of 2021, these 5 stocks returned 324.5% and beat the S&P 500 Index by 131 percentage points. So, this year the S&P 500 Index started to close the performance gap, but we believe this is just a temporary blip and when the bull market resumes, hedge funds’ top stock picks will resume their historical trajectory of strong outperformance.
Every quarter we process more than 900 hedge funds’ 13F filings and identify the top stocks among ALL 900+ hedge funds. In this article we are going to take a look at 10 stocks that hedge funds dumped the most or dropped out of hedge funds’ top 30 stocks list.
10. Danaher Corporation (NYSE: DHR)
Number of Hedge Funds: 83 (2022Q1)
Number of Hedge Funds: 87 (2021Q4)
Number of Hedge Funds: 74 (2021Q3)
Total Dollar Amount of Long Hedge Fund Positions: $6.2 billion
Percent of Hedge Funds with Long Positions: 9.1%
Popularity Ranking (2021Q4):29
Popularity Ranking (2021Q3): 42
Noteworthy Hedge Fund Shareholders: Dan Loeb, Barry Dargan
Danaher Corporation ranked 29th among the 30 most popular stocks among hedge funds at the end of December. During the first quarter the number of hedge funds with bullish Danaher Corporation positions declined by 4. This is usually not enough to cause any alarms but because of this decline Danaher isn’t one of the top 30 hedge fund stocks anymore. D1 Capital, Sculptor Capital, Element Capital and Islet Management were among the hedge funds that dumped Danaher Corporation (DHR) during the first quarter.
9. Tesla Inc. (NASDAQ: TSLA)
Number of Hedge Funds: 80 (2022Q1)
Number of Hedge Funds: 91 (2021Q4)
Number of Hedge Funds: 60 (2021Q3)
Total Dollar Amount of Long Hedge Fund Positions: $11.3 billion
Percent of Hedge Funds with Long Positions: 8.8%
Popularity Ranking (2021Q4): 26
Popularity Ranking (2021Q3): 102
Noteworthy Hedge Fund Shareholders: Cathie Wood, Motley Fool Asset Management
Tesla Inc. (TSLA) was the 26th most popular stock among hedge funds at the end of December. During the first quarter eleven hedge funds (net change) sold out of Tesla Inc. As a result, Tesla isn’t among the 30 most popular stocks among hedge funds. Ursa Fund Management, Deepcurrents Investment Group, and Viking Global sold out of Tesla Inc. All of these hedge funds had at least $180 million invested in Tesla Inc. at the end of December. Not everyone was bearish though. Here is what Baron Funds said about Tesla:
“During the first quarter, we bought back shares in Tesla, Inc., which designs, manufactures, and sells electric vehicles, solar products, energy storage solutions, and batteries. We believe that despite the run in the stock over the last few years, Tesla presents a favorable risk/reward profile and remains a Big Idea with only about 1% market share of the automotive market. Since we bought the stock during the first quarter, shares increased 27.1%, despite a complex supply-chain environment, on continued revenue growth and record profitability. Robust demand and operational optimization allow the company to offset inflationary pressures while vertical integration provides flexibility around supply bottlenecks. Moreover, we expect new localized manufacturing capacity to drive additional efficiencies while software initiatives, including the autonomous driving program, are accelerating, offering valuable optionality to the stock.”
Pixabay/Public Domain
8. Block Inc. (NYSE: SQ)
Number of Hedge Funds: 84 (2022Q1)
Number of Hedge Funds: 96 (2021Q4)
Number of Hedge Funds: 98 (2021Q3)
Number of Hedge Funds: 94 (2021Q2)
Total Dollar Amount of Long Hedge Fund Positions: $6.2 billion
Percent of Hedge Funds with Long Positions: 9.2%
Popularity Ranking (2021Q4): 21
Popularity Ranking (2021Q3): 18
Popularity Ranking (2021Q2): 22
Noteworthy Hedge Fund Shareholders: Bares Capital Management, Cathie Wood
Block Inc (SQ) was the 21st most popular stocks among hedge funds at the end of December. The stock was in 96 hedge funds’ portfolio at the time. There was a net decline of 12 hedge funds during the first quarter and Block Inc. dropped out of the top 30 hedge fund stocks list. Here is how Ferrer Wealth Advisors explained why they dumped Block Inc. (SQ):
“Block (formerly Square): We ‘adopted’ Block’s stock after the company bought Afterpay, which we were investors in. We had been trimming the Afterpay position throughout 2021 and trimmed again after the acquisition, so the position was quite small. We held onto that small portion, as we did think the acquisition made sense and were excited to see the two companies integrate and for Block to create a closed loop network between merchants and consumers. However, the market punished most highly valued tech stocks over the last months, and we saw the position move against us by over 50%. We are firm believers that when a stock goes against you by 50%+, you need to do something about it. Either trim/sell and reinvest or buy more. In the case of Block, the original reason for holding was to see how the acquisition and integration with Afterpay panned out. The market did not give us the time to see this play out, thus we were not comfortable adding more to the position. Further for the stock to recover to our purchase price, we felt the company’s valuation would need to command a future exit multiple that the market would be unlikely to pay in this environment. Given this, we exited the remainder of the position.”
7. Shopify Inc. (NYSE: SHOP)
Number of Hedge Funds: 72 (2022Q1)
Number of Hedge Funds: 86 (2021Q4)
Number of Hedge Funds: 73 (2021Q3)
Total Dollar Amount of Long Hedge Fund Positions: $5.8 billion
Percent of Hedge Funds with Long Positions: 7.9%
Popularity Ranking (2021Q4): 30
Popularity Ranking (2021Q3): 49
Noteworthy Hedge Fund Shareholders: Cathie Wood, Lone Pine Capital
Shopify Inc. (SHOP) saw a large inflow of hedge funds during the fourth quarter of 2021 as SHOP shares peaked at $1770. Unfortunately, Shopify Inc. (SHOP) tanked, and hedge funds rushed to the exits during the first quarter. The number of bullish SHOP positions among hedge funds declined by 14 during the first quarter. Shopify Inc (SHOP) shares declined close to 50% since then, so hedge funds like Egerton Capital, D1 Capital, and Coatue made the right move. Here is what Baron Global Advantage Fund said about Shopify Inc. (SHOP) recently:
“Shopify Inc. is a cloud-based software provider offering an operating system for multi-channel commerce. Shopify has been adopted by over two million merchants who processed $175 billion of gross merchandise volume in 2021, making it the second largest e-commerce player in the U.S. The stock corrected sharply in the first quarter, declining 51%, as a result of investor rotation out of fast-growing, long-duration stocks and after the company released quarterly results, expecting a normalization in the rapid growth it has experienced during the early stages of the pandemic. We remain shareholders as we believe Shopify has a long runway for growth addressing less than 1% of global commerce spending with a unique and competitively advantaged platform.”
Cathie Wood of ARK Investment Management
6. General Motors (NYSE:GM)
Number of Hedge Funds: 76 (2022Q1)
Number of Hedge Funds: 90 (2021Q4)
Number of Hedge Funds: 77 (2021Q3)
Total Dollar Amount of Long Hedge Fund Positions: $5.5 billion
Percent of Hedge Funds with Long Positions: 8.3%
Popularity Ranking (2021Q4): 28
Popularity Ranking (2021Q3): 36
Noteworthy Hedge Fund Shareholders: Warren Buffett, Greenhaven Associates
General Motors was among the 30 most popular hedge fund stocks at the end of December, but that was short lived. The number of bullish hedge fund positions in GM went down by 14 during the first quarter as billionaires like David Tepper, George Soros, and Louis Bacon dumped General Motors (GM) shares. Here is what Oakmark Global Fund has to say about General Motors Company (NYSE:GM) in its Q1 2022 investor letter:
“General Motors (NYSE:GM) was a detractor during the quarter, due to increased macro uncertainty, higher fuel prices, and concerns over rising input costs, which pressured the company in particular and the auto industry as a whole. While we are closely monitoring the potential impact of these dynamics, industry demand remains robust, driven by strong consumer balance sheets and pent-up demand after multiple years of constrained production. We also remain confident in GM’s ability to navigate a complex operating environment, which the company has consistently demonstrated over the past few years. Finally, the long-term picture remains bright. We believe GM is significantly undervalued, is well-positioned for the long-term transition to electric vehicles and has numerous needle-moving ancillary business opportunities (most notably Cruise, which is an industry leader in autonomous vehicle technology) that are underappreciated.”
5. Rivian Automotive Inc (RIVN):
Number of Hedge Funds: 29 (2022Q1)
Number of Hedge Funds: 47 (2021Q4)
Hedge funds couldn’t sell Rivian (RIVN) fast enough as the number of bullish hedge fund positions in RIVN went down by 18. Tiger Global, Candlestick Capital, and Suvretta were among the hedge funds that dumped Rivian. Here is what Baron Funds said about RIVN in its latest investor letter:
“Rivian Automotive, Inc. designs, manufactures, and sells consumer and commercial electric vehicles. Shares of Rivian continued its volatile trading following the stock’s IPO in late 2021, declining 52% in the first quarter as investors rotated out of fast-growing long-duration stocks and as industrywide supply-chain issues delayed Rivian’s production ramp. In addition, even while other automotive companies raised prices due to inflationary pressures, Rivian launched a price increase campaign that was not well communicated and, as a result, was met with dissatisfaction by existing reservation holders. While this was an unforced error, the company quickly corrected course, reversing its decision to raise prices for existing reservations, while maintaining the increase on new buyers (which has not caused a material impact to demand). We retain conviction in the shares given management’s vision, Rivian’s product positioning, the company’s relationship with Amazon.com, and the company’s strong balance sheet, which will help it overcome the current challenges while taking advantage of the long-term opportunity as the market transitions to electric vehicles.”
4. Roblox Corporation (RBLX):
Number of Hedge Funds: 40 (2022Q1)
Number of Hedge Funds: 61 (2021Q4)
Another high growth stock hedge funds dumped during the first quarter is Roblox Corporation. The number of bullish hedge fund positions declined by 21 during the first three months of 2022 as RBLX lost around half of its value. Tybourne Capital, Hitchwood Capital, and Ratan Capital were among these hedge funds. Here is how Tao Value explained why hedge funds initially flocked into Roblox:
“Roblox (RBLX) got significant more attention from both institutional & retail investors after Facebook announced to rename itself as Meta Platforms. I believe the price appreciation is largely attributed to the increased attention. On business side, Roblox rolled out a few successful music events and also partnered with Netflix on testing long-form media consumption in virtual world. Apple in its iOS 14.5 rolled out an impactful change for digital advertising landscape by requiring all apps to ask users to “opt in”.
Unfortunately, both Meta Platforms and Roblox experienced huge outflows during the first quarter as investor appetite towards metaverse stocks soured.
3. Paramount Global (PARA):
Number of Hedge Funds: 40 (2022Q1)
Number of Hedge Funds: 64 (2021Q4)
Paramount Global is a casualty of streaming wars. Stocks like Netflix and Disney didn’t experience a lot of hedge fund turnover but Paramount Global did. The number of bullish hedge fund positions went down from 64 to 40 during the first quarter. Quant hedge funds like Renaissance Technologies and Two Sigma sold out of the stock during the first quarter. Here is what we recently said about PARA:
“Paramount Global (NASDAQ:PARA) is a media and entertainment firm. Latest 13F data shows that Berkshire opened a new position in the stock in the first quarter of 2022, comprising over 68 million shares worth $2.6 billion, representing 0.71% of the portfolio. On May 3, the firm posted earnings for the first quarter of 2022, reporting earnings per share of $0.60, beating market estimates by $0.08. The revenue over the period was $7.33 billion, down close to 1% compared to the revenue over the same period last year.
On May 23, Citi analyst Jason Bazinet maintained a Buy rating on Paramount Global (NASDAQ:PARA) stock and lowered the price target to $44 from $47, noting that the stock was valued on a “sum of the parts” basis.
At the end of the first quarter of 2022, 40 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Paramount Global (NASDAQ:PARA), compared to 64 in the previous quarter worth $1 billion.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Ariel Investments is a leading shareholder in Paramount Global (NASDAQ:PARA), with 5.6 million shares worth more than $213 million. “
2. Meta Platforms (FB):
Number of Hedge Funds: 200 (2022Q1)
Number of Hedge Funds: 224 (2021Q4)
“Meta Platforms Inc., the parent company of Facebook, reported excellent operating results in 2021. Its revenue increased 37%, operating earnings increased 40%, and the company generated $40 billion of free cash flow. Despite these excellent results, Meta experienced extreme volatility in its stock price during the first quarter. We believe that two factors are responsible for this volatility. First, the company quantified the headwind to revenue from Apple’s recent privacy changes in the amount of approximately $10 billion for 2022. Meta is rebuilding its advertising technology, and we believe the long-term headwinds from Apple’s privacy changes will be limited because Meta will create a suitable solution. Second, Meta continues to invest heavily into its Reality Labs segment, also known as the metaverse. While we believe the metaverse presents great opportunity for Meta, we are not assigning any value to it in our valuation work. While 2022 may be challenging for Meta, the company’s competitive advantages are still intact, and the company trades at a significant discount to our estimate of its intrinsic value. Despite our concerns about a possible recession, we expect Meta to return to double-digit bottom line growth next year.”
1. Sea Limited (NYSE: SE)
Number of Hedge Funds: 77 (2022Q1)
Number of Hedge Funds: 108 (2021Q4)
Number of Hedge Funds: 117 (2021Q3)
Number of Hedge Funds: 104 (2021Q2)
Total Dollar Amount of Long Hedge Fund Positions: $5.1 billion
Percent of Hedge Funds with Long Positions: 8.4%
Popularity Ranking (2022Q1): 16
Popularity Ranking (2021Q4): 16
Popularity Ranking (2021Q3): 12
Popularity Ranking (2021Q2): 18
Noteworthy Hedge Fund Shareholders: ARK Investment Management, Chase Coleman, Kora Management
Investors didn’t have any patience for cash flow negative companies that were trading at 10-50x their revenues. Sea Limited shares experienced the biggest outflow among hedge funds. SE shares closed at $223.71 on December 31st. They are currently trading at $83, losing 30% during the second quarter.
Please also see Hedge Fund Investor Letters 2022 Q1 and 10 Stocks To Buy and Hold For Decades According to Warren Buffett.
Disclosure: None. 10 Stocks Hedge Funds Are Dumping is originally published at Insider Monkey.
