Are These Hedge Funds Sorry For Dumping Take-Two Interactive Software, Inc. (TTWO)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) investors should be aware of a decrease in enthusiasm from smart money of late. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) was in 61 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 66. There were 66 hedge funds in our database with TTWO holdings at the end of March. Our calculations also showed that TTWO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a peek at the new hedge fund action regarding Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

What have hedge funds been doing with Take-Two Interactive Software, Inc. (NASDAQ:TTWO)?

At the end of the second quarter, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TTWO over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Take-Two Interactive Software, Inc. (NASDAQ:TTWO), with a stake worth $189 million reported as of the end of September. Trailing Renaissance Technologies was Suvretta Capital Management, which amassed a stake valued at $113.6 million. Arrowstreet Capital, Polar Capital, and Third Point were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Thunderbird Partners allocated the biggest weight to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), around 9.41% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, dishing out 8.43 percent of its 13F equity portfolio to TTWO.

Seeing as Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that decided to sell off their full holdings by the end of the second quarter. Intriguingly, Gabriel Plotkin’s Melvin Capital Management cut the largest position of the 750 funds followed by Insider Monkey, totaling about $401.2 million in stock. Andrew Immerman and Jeremy Schiffman’s fund, Palestra Capital Management, also dumped its stock, about $63.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Take-Two Interactive Software, Inc. (NASDAQ:TTWO). These stocks are Arista Networks Inc (NYSE:ANET), Baker Hughes Company (NYSE:BKR), Agnico Eagle Mines Limited (NYSE:AEM), ORIX Corporation (NYSE:IX), Trip.com Group Limited (NASDAQ:TCOM), Invitation Homes Inc. (NYSE:INVH), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). This group of stocks’ market values resemble TTWO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $595 million. That figure was $1413 million in TTWO’s case. Arista Networks Inc (NYSE:ANET) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is more popular among hedge funds. Our overall hedge fund sentiment score for TTWO is 77.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on TTWO as the stock returned 20.5% since the end of June (through 10/16) 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.