Can Hedge Funds See Into The Future?

Can hedge funds see into the future with their stock investments? Results may vary, but hedge funds usually make the right stock picks when looking at their consensus moves.

In this article, Insider Monkey looks at the long-term performance of hedge funds’ most popular stock picks with particular interest. Hedge funds had a consensus on these stocks being great long-term investments and when a lot of rich guys with millions or billions of dollars to invest agree on which companies are worth their money, chances are good that they’ll be right.

For example, the top 10 most popular stocks among hedge funds as of the end of 2013 had an average return of 31.31% over the three-year period between February 28, 2014, and February 28, 2017, compared with a gain of only 26.93% for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).

That’s why we track hedge funds’ consensus picks and share them with our subscribers. Our flagship strategy has gained 44% since February 2016 and our stock picks released in the middle of February 2017 gained over 5 percentage points in the three months that followed. Our latest stock picks were released in the middle of May, which investors can gain access to by becoming a subscriber to Insider Monkey’s premium newsletters.

The following list ranks the performance of hedge funds’ top picks as of the end of 2013 during the February 28, 2014, to February 28, 2017 period. These picks are based on the 13F filings issued by the hedge funds in our database at that time, which were released by mid-February 2014, and which disclosed their holdings as of December 31, 2013. We typically calculate stock performance from two weeks after our picks are released, which is how we came to the dates to use.

However, we will exclude one company from the rankings – Time Warner Cable Inc (NYSE:TWC) – because it was bought by Charter Communications in May 2016. Nonetheless, here’s Time Warner Cable’s stock performance between February 2013 and the company’s final trading day before the Charter merger:

Stock price as of February 28, 2014: $140.35

Stock price on final day of trading (May 17, 2016): $209.56

Stock price growth: 49.31%

The answer to the question “can hedge funds see into the future?” seems to be “no” when it comes to the first three companies on the following pages, whose stock growth has lagged behind the other companies on this list. That list includes Alphabet Inc (NASDAQ:GOOGL), American International Group Inc (NYSE:AIG), Apple Inc. (NASDAQ:AAPL), Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), General Motors Company (NYSE:GM), Hertz Global Holdings Inc (NYSE:HRI), JPMorgan Chase & Co. (NYSE:JPM), and Microsoft Corporation (NASDAQ:MSFT). Check it out beginning on the next page.

9. Hertz Global Holdings Inc (NYSE:HRI)

Hedge fund investment in Hertz Global Holdings Inc (NYSE:HRI) as of December 31, 2013: 109 hedge funds, including James Dinan’s York Capital Management with a $345.3 million stake

Stock price as of February 28, 2014: $420.15

Stock price three years later (February 28, 2017): $51.69

Stock price growth: -87.70%

Hedge fund investment as of March 31, 2017: 31 hedge funds, with aggregate holdings of $828.76 million

8. General Motors Company (NYSE:GM)

Hedge fund investment in General Motors Company (NYSE:GM) as of December 31, 2013: 183 hedge funds, including investments of $1.63 billion from Warren Buffett’s Berkshire Hathaway and $696.73 million from David Einhorn’s Greenlight Capital.

Stock price as of February 28, 2014: $36.20

Stock price three years later (February 28, 2017): $36.84

Stock price growth: 1.76%

Hedge fund investment as of March 31, 2017: 58 hedge funds, with aggregate holdings of $6.16 billion

7. Citigroup Inc (NYSE:C)

Hedge fund investment in Citigroup Inc (NYSE:C) as of December 31, 2013: 143 hedge funds, including Ken Fisher’s Fisher Asset Management with $579.1 million in shares.

Stock price as of February 28, 2014: $48.63

Stock price three years later (February 28, 2017): $59.81

Stock price growth: 22.99%

Hedge fund investment as of March 31, 2017: 112 hedge funds, with aggregate holdings of $9.81 billion

6. American International Group Inc (NYSE:AIG)

Hedge fund investment in American International Group Inc (NYSE:AIG) as of December 31, 2013: 146 hedge funds, with mutual fund Fairholme being the biggest shareholder.

Stock price as of February 28, 2014: $49.77

Stock price three years later (February 28, 2017): $63.92

Stock price growth: 28.43%

Hedge fund investment as of March 31, 2017: 61 hedge funds, with aggregate holdings of $6.02 billion

5. Alphabet Inc (NASDAQ:GOOGL)

Hedge fund investment in Alphabet Inc (NASDAQ:GOOGL) (then named Google Inc.) as of December 31, 2013: 183 hedge funds, including Boykin Curry’s Eagle Capital Management with 800,000 shares and Citadel with 710,600 shares.

Stock price as of February 28, 2014*: $608.43

Stock price three years later (February 28, 2017): $844.93

Stock price growth: 38.87%

Hedge fund investment as of March 31, 2017: 135 hedge funds with aggregate holdings of $13.6 billion in class A shares, 117 funds with $12.6 billion in class C shares.

*Value adjusted to reflect the company’s stock split on March 27, 2014

4. Bank of America Corp (NYSE:BAC)

Hedge fund investment in Bank of America Corp (NYSE:BAC) as of December 31, 2013: 107 hedge funds, with Bruce Berkowitz‘s Fairholme holding a $1.55 billion stake.

Stock price as of February 28, 2014: $16.53

Stock price three years later (February 28, 2017): $24.68

Stock price growth: 49.30%

Hedge fund investment as of March 31, 2017: 138 hedge funds, with aggregate holdings of $12.36 billion.

The answer to the question “Can hedge funds see into the future?” is a resounding yes when it comes to the next three companies, which exhibited remarkable stock value growth over the three-year period in question.

3. JPMorgan Chase & Co. (NYSE:JPM)

Hedge fund investment in JPMorgan Chase & Co. (NYSE:JPM) as of December 31, 2013: 118 hedge funds, including Lansdowne Partners, which owned 2.1 million shares.

Stock price as of February 28, 2014: $56.82

Stock price three years later (February 28, 2017): $90.62

Stock price growth: 59.49%

Hedge fund investment as of March 31, 2017: 101 hedge funds, with aggregate holdings of $10.37 billion.

2. Microsoft Corporation (NASDAQ:MSFT)

Hedge fund investment in Microsoft Corporation (NASDAQ:MSFT) as of December 31, 2013: 120 hedge funds, including Jeffrey Ubben’s ValueAct Capital with a $2.5 billion position.

Stock price as of February 28, 2014: $38.31

Stock price three years later (February 28, 2017): $63.98

Stock price growth: 67.01%

Hedge fund investment as of March 31, 2017: 121 hedge funds, with aggregate holdings of $18.97 billion.

1. Apple Inc. (NASDAQ:AAPL)

Hedge fund investment in Apple Inc. (NASDAQ:AAPL) as of December 31, 2013: 160 hedge funds, including Carl Icahn’s Icahn Capital and Ken Griffin’s Citadel Investment Group.

Stock price as of February 28, 2014*: $74.59

Stock price three years later (February 28, 2017): $136.99

Stock price growth: 83.66%

Hedge fund investment as of March 31, 2017: 113 hedge funds, with aggregate holdings of $30.91 billion.

So, “can hedge funds see into the future?” Their top consensus picks performed well on the whole, beating the market despite the terrible performance of Hertz. Ultimately, that’s the primary way to judge investing success, so we have to conclude that when it comes to stocks, hedge funds do have a strong collective knack for envisioning future stock performance.

*Value adjusted to reflect the company’s stock split on June 9, 2014.

Disclosure: None