A turbulent fourth-quarter lead to several major changes on Insider Monkey’s quarterly list of the 30 Most Popular Stocks Among Hedge Funds, though the top stock hung on to its perch for the second straight quarter.
The 2018 year finished on a decidedly sour note for the $3 trillion hedge fund industry, which suffered $42.3 billion in redemptions during December according to BarclayHedge, the highest monthly total in over five years. On a fund-weighted basis, the industry lost 4.1% during the year, its worst showing since 2011. Among the biggest losers were David Einhorn’s Greenlight Capital, Larry Robbins’ Glenview Capital, and Dan Loeb’s Third Point, all of which incurred double-digit losses.
It wasn’t all bad news, as several of the biggest funds in the world were able to deliver big returns. The flagship Wellington fund of Ken Griffin’s Citadel Advisors gained 9.1%, while the Pure Alpha fund of Ray Dalio’s Bridegwater Associates posted 14.6% gains. Chase Coleman’s Tiger Global was close to 14% returns, while Jim Simons’ Renaissance Technologies continued to widely outpace the market as it has for decades. Michael Castor’s Sio Capital is among the best performing hedge funds in 2018 after delivering a net gain of 23.3%.
Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. We launched a long activist investing strategy in our monthly newsletter 2 years ago. This strategy’s stock picks returned 61% in 2 short years, vs. a gain of 21% for the S&P 500 Index ETF (SPY). Last October we shared one of our stock picks, Ascendis Pharmaceuticals (ASND), in a free sample issue of our monthly newsletter (you can still download it free of charge). The stock doubled in less than 5 months.
We have also been very successful at identifying stocks that will decline even in a bull market. We launched our short strategy a little more than 2 years ago and share our short stock picks in our quarterly newsletter. This strategy’s picks lost 27.5% since then, vs. a gain of 25% for the S&P 500 Index. This means our short strategy actually outperformed the market by 52.5 percentage points (let us know if you don’t understand how the outperformance for a short strategy is calculated).
Last week our monthly newsletter identified another undervalued stock that is expected to increase its earnings by more than 10% annually and trades at only 10 times its 2019 earnings. We expect this stock to return 60% in the next 12-24 months. Email us if you are interested in this stock or subscribe here.
Here is another interesting statistics. If you had invested in hedge funds’ top 15 stock picks at the end of 2018, you would have generated a total return of 19.7% year-to-date vs. a gain of only 13.1% for the S&P 500 ETF. Hedge funds’ top 15 stock picks from the September quarter also outperformed the market by more than 3 percentage points since the end of September. As you can see there is real value in hedge funds’ consensus picks.
Several interesting trends in hedge fund ownership emerged during the tumultuous Q4, with several industries losing favor as hedge funds sought safer havens for their money like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), in which there was a noteworthy 40% jump in hedge fund ownership during the quarter.
Hedge funds soured on video game stocks during the holiday quarter, as Fortnite’s immense popularity continues to weigh on the results of major game developers like Activision Blizzard, Inc. (NASDAQ:ATVI) and Electronic Arts Inc. (NASDAQ:EA), both of which fell out of the top 30 Most Popular Stocks Among Hedge Funds. Activision Blizzard lost tens of millions of monthly active users throughout the first three quarters of last year, while its mobile Diablo reveal in November was widely denounced by fans. EA announced a quarterly revenue miss last week, citing “intense competition” and the failure of Battlefield V to resonate as strongly with players as the company would have liked.
Other stocks being pushed out of the top 30 by the end of Q4 were AT&T Inc. (NYSE:T), DowDuPont Inc. (NYSE:DWDP), and Express Scripts Holding Company (NASDAQ:ESRX), the latter of which had just seen a 33% jump in hedge fund ownership during Q3.
CVS Health Corporation (NYSE:CVS) replaced Aetna in the top 30 thanks to its $69 billion merger with the company closing in late-November, which drove hedge fund ownership of the stock up by 57% during Q4. Five other stocks made moves into the top 30, including Marathon Petroleum Corporation (NYSE:MPC), The Walt Disney Company (NYSE:DIS), and Johnson & Johnson (NYSE:JNJ).
In addition to buying CVS and JNJ during the quarter, hedge funds were also bullish on UnitedHealth Group Incorporated (NYSE:UNH) as they turned to healthcare stocks amid a flight from tech and finance. The travel industry was also a popular landing spot for hedge fund capital during Q4, as both Delta Air Lines, Inc. (NYSE:DAL) and Booking Holdings Inc. (NASDAQ:BKNG) pushed into the top 30.
Despite appearing mortal for the first time in years, the FAANG stocks continued to feature prominently in many hedge funds’ portfolios, occupying five of the top seven spots (when including both classes of Alphabet Inc. (NASDAQ:GOOGL)’s shares) on the list. Amazon.com, Inc. (NASDAQ:AMZN) made the biggest jump among FAANG stocks, pushing within shouting distance of the top spot, while there were small declines in the hedge fund ownership of both Facebook, Inc. (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX). Apple Inc. (NASDAQ:AAPL) maintained its position in the top ten despite prominent money managers like George Soros and David Tepper selling out of the tech giant.
Barely hanging on to a position among the 30 Most Popular Stocks Among Hedge Funds was Twenty-First Century Fox, Inc. (NASDAQ:FOXA). Large positions in Fox were unloaded during Q4 by several of 2018’s best performing hedge funds, including Renaissance Technologies, Citadel Advisors, Michael Platt and William Reeves’ BlueCrest Capital, and Jeffrey Talpins’ Element Capital Management.
- Twenty-First Century Fox, Inc. (NASDAQ:FOXA)
Number of Hedge Funds (as of December 31, 2018): 70 (-3 quarter-over-quarter)
Total Dollar Amount of Long Hedge Fund Positions (as of December 31, 2018): $9.86 billion
Percent of Hedge Funds with Long Positions (as of December 31, 2018): 9.4%
1st Quarter Return (through February 14): 4.62%
52-Week Return (through February 14): 35.28%
Noteworthy Hedge Fund Shareholders: Seth Klarman, Mario Gabelli
Head to the next page to continue the countdown of the 30 Most Popular Stocks Among Hedge Funds as of December 31, 2018.