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Do Hedge Funds Have Too Much Confidence In Amazon.com, Inc. (AMZN)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Amazon.com, Inc. (NASDAQ:AMZN) in this article.

Amazon.com, Inc. (NASDAQ:AMZN) is the 3rd most popular stocks hedge funds at the end of March (see the 30 most popular stocks among hedge funds). Hedge fund sentiment towards AMZN is still near its all time high that was reached at the end of 2018.

To most shareholders, hedge funds are viewed as underperforming, outdated investment vehicles of the past. While there are over 8000 funds trading today, Our researchers hone in on the aristocrats of this club, about 750 funds. It is estimated that this group of investors handle the lion’s share of the hedge fund industry’s total capital, and by observing their inimitable picks, Insider Monkey has brought to light a number of investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

Frank Brosens Taconic Capital

Let’s take a gander at the key hedge fund action surrounding Amazon.com, Inc. (NASDAQ:AMZN).

What have hedge funds been doing with Amazon.com, Inc. (NASDAQ:AMZN)?

At Q1’s end, a total of 166 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in AMZN over the last 15 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

AMZN_may2019

According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the number one call position in Amazon.com, Inc. (NASDAQ:AMZN), worth close to $5.2213 billion, comprising 2.6% of its total 13F portfolio. On Citadel Investment Group’s heels is Fisher Asset Management, managed by Ken Fisher, which holds a $2.4344 billion position; the fund has 3.3% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions comprise Boykin Curry’s Eagle Capital Management, Chase Coleman’s Tiger Global Management LLC and Stephen Mandel’s Lone Pine Capital.

Because Amazon.com, Inc. (NASDAQ:AMZN) has faced a decline in interest from the smart money, it’s safe to say that there were a few money managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Daniel Sundheim’s D1 Capital Partners cut the biggest position of all the hedgies followed by Insider Monkey, totaling close to $426.3 million in call options, and Andrew Hahn’s Ursa Fund Management was right behind this move, as the fund sold off about $300.4 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Amazon.com, Inc. (NASDAQ:AMZN) but similarly valued. We will take a look at Alphabet Inc (NASDAQ:GOOGL), Alphabet Inc (NASDAQ:GOOG), Berkshire Hathaway Inc. (NYSE:BRK-B), and Facebook Inc (NASDAQ:FB). This group of stocks’ market valuations match AMZN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GOOGL 147 11115409 1
GOOG 133 13597514 -8
BRK-B 91 20086059 4
FB 176 18349790 15
Average 136.75 15787193 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 136.75 hedge funds with bullish positions and the average amount invested in these stocks was $15787 million. That figure was $19400 million in AMZN’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Berkshire Hathaway Inc. (NYSE:BRK-B) is the least popular one with only 91 bullish hedge fund positions. Amazon.com, Inc. (NASDAQ:AMZN) is not the most popular stock in this group but that’s because of Facebook which is the most popular stock among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AMZN as the stock returned 2% during the same period and outperformed the market by a similar margin. Hedge funds were rewarded for their relative bullishness.

However, we believe hedge funds and other AMZN bulls don’t appreciate the potential negative effects of larger tariffs on Amazon’s growth. Amazon may continue to outperform the market but this doesn’t necessarily mean that Amazon shareholders will generate positive returns.

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

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