Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Alibaba Group Holding Limited (NYSE:BABA) to find out whether there were any major changes in hedge funds’ views.
Alibaba Group Holding Limited (NYSE:BABA) was in 115 hedge funds’ portfolios at the end of September. The all time high for this statistic is 170. BABA investors should pay attention to a decrease in hedge fund interest of late. There were 146 hedge funds in our database with BABA holdings at the end of June. Our calculations also showed that BABA dropped out of the top 10 and is ranked 13th among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Israel Englander of Millennium Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s go over the latest hedge fund action surrounding Alibaba Group Holding Limited (NYSE:BABA).
Do Hedge Funds Think BABA Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 115 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BABA over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in Alibaba Group Holding Limited (NYSE:BABA), which was worth $2103.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $1992 million worth of shares. Millennium Management, Rokos Capital Management, and Citadel Investment Group 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 Polunin Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 100% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, earmarking 19.05 percent of its 13F equity portfolio to BABA.
Since Alibaba Group Holding Limited (NYSE:BABA) has faced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds that decided to sell off their full holdings heading into Q4. Intriguingly, Cliff Asness’s AQR Capital Management cut the biggest position of all the hedgies followed by Insider Monkey, comprising about $763.4 million in stock, and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC was right behind this move, as the fund said goodbye to about $217.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 31 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Alibaba Group Holding Limited (NYSE:BABA) but similarly valued. These stocks are Walmart Inc. (NYSE:WMT), UnitedHealth Group Inc. (NYSE:UNH), Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), Mastercard Incorporated (NYSE:MA), The Procter & Gamble Company (NYSE:PG), and ASML Holding N.V. (NASDAQ:ASML). All of these stocks’ market caps match BABA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMT | 71 | 7932562 | 0 |
| UNH | 95 | 11705313 | -10 |
| BAC | 72 | 46487618 | -15 |
| HD | 58 | 4380170 | -6 |
| MA | 146 | 17659997 | -10 |
| PG | 69 | 6414152 | 1 |
| ASML | 41 | 4858031 | -3 |
| Average | 78.9 | 14205406 | -6.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 78.9 hedge funds with bullish positions and the average amount invested in these stocks was $14205 million. That figure was $10201 million in BABA’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 41 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BABA is 73.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately BABA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BABA were disappointed as the stock returned -13.9% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Alibaba Group Holding Limited (NYSE:BABA)
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Disclosure: None. This article was originally published at Insider Monkey.
