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2019 Review: Most Favored Hedge Fund Stocks vs. Facebook Inc (FB)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Facebook Inc (NASDAQ:FB).

Is Facebook Inc (NASDAQ:FB) the right investment to pursue these days? Money managers are becoming less confident. The number of bullish hedge fund bets fell by 3 lately. Nevertheless, our calculations also showed that FB ranked #1 among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Today there are a multitude of formulas stock market investors employ to evaluate publicly traded companies. A couple of the most under-the-radar formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best fund managers can outclass the market by a healthy margin (see the details here).

Boykin Curry EAGLE CAPITAL MANAGEMENT

Boykin Curry of Eagle Capital

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to check out the latest hedge fund action encompassing Facebook Inc (NASDAQ:FB).

Hedge fund activity in Facebook Inc (NASDAQ:FB)

At Q3’s end, a total of 179 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 164 hedge funds with a bullish position in FB a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Facebook Inc (NASDAQ:FB) was held by Tiger Global Management, which reported holding $1998.3 million worth of stock at the end of September. It was followed by Viking Global with a $1110.5 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and Eagle Capital Management. In terms of the portfolio weights assigned to each position Harvard Management Co allocated the biggest weight to Facebook Inc (NASDAQ:FB), around 37.61% of its 13F portfolio. Immersion Capital is also relatively very bullish on the stock, earmarking 30.65 percent of its 13F equity portfolio to FB.

Judging by the fact that Facebook Inc (NASDAQ:FB) has experienced declining sentiment from hedge fund managers, logic holds that there were a few hedgies that slashed their positions entirely in the third quarter. Interestingly, Karthik Sarma’s SRS Investment Management dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling about $447.4 million in stock, and Glenn Greenberg’s Brave Warrior Capital was right behind this move, as the fund said goodbye to about $111.5 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Facebook Inc (NASDAQ:FB) but similarly valued. These stocks are Alibaba Group Holding Limited (NYSE:BABA), Visa Inc (NYSE:V), JPMorgan Chase & Co. (NYSE:JPM), and Johnson & Johnson (NYSE:JNJ). All of these stocks’ market caps match FB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BABA 149 19197070 22
V 132 15686359 15
JPM 84 11167465 -6
JNJ 76 7326703 13
Average 110.25 13344399 11

View table here if you experience formatting issues.

As you can see these stocks had an average of 110.25 hedge funds with bullish positions and the average amount invested in these stocks was $13344 million. That figure was $20837 million in FB’s case. Alibaba Group Holding Limited (NYSE:BABA) is the most popular stock in this table. On the other hand Johnson & Johnson (NYSE:JNJ) is the least popular one with only 76 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on FB as the stock returned 57.3% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.

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