Hedge Fund Consensus Stocks vs. Alibaba Group Holding Limited (BABA) In 2019

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Alibaba Group Holding Limited (NYSE:BABA).

Alibaba Group Holding Limited (NYSE:BABA) was in 149 hedge funds’ portfolios at the end of September. BABA has seen an increase in activity from the world’s largest hedge funds recently. There were 127 hedge funds in our database with BABA positions at the end of the previous quarter. Our calculations also showed that BABA currently ranks #4 among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

To most stock holders, hedge funds are viewed as underperforming, outdated investment vehicles of years past. While there are more than 8000 funds with their doors open at the moment, Our researchers choose to focus on the crème de la crème of this club, about 750 funds. These investment experts handle the lion’s share of all hedge funds’ total asset base, and by following their unrivaled investments, Insider Monkey has determined several investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Chase Coleman of Tiger Global

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a peek at the fresh hedge fund action regarding Alibaba Group Holding Limited (NYSE:BABA).

How are hedge funds trading Alibaba Group Holding Limited (NYSE:BABA)?

Heading into the fourth quarter of 2019, a total of 149 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BABA over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in Alibaba Group Holding Limited (NYSE:BABA), worth close to $2.2519 billion, accounting for 2.5% of its total 13F portfolio. The second most bullish fund manager is Tiger Global Management, led by Chase Coleman, holding a $1.3011 billion position; 6.9% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions include Lone Pine Capital, David E. Shaw’s D E Shaw and John Armitage’s Egerton Capital Limited. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 38.96% of its 13F portfolio. Keywise Capital Management is also relatively very bullish on the stock, dishing out 26.85 percent of its 13F equity portfolio to BABA.

Consequently, key money managers were leading the bulls’ herd. Sculptor Capital initiated the most valuable call position in Alibaba Group Holding Limited (NYSE:BABA). Sculptor Capital had $285.9 million invested in the company at the end of the quarter. David Tepper’s Appaloosa Management also initiated a $217.4 million position during the quarter. The other funds with new positions in the stock are Matt Sirovich and Jeremy Mindich’s Scopia Capital, Jacob Doft’s Highline Capital Management, and Jeffrey Altman’s Owl Creek Asset Management.

Let’s go over hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). These stocks are Visa Inc (NYSE:V), JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT). This group of stocks’ market valuations match BABA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
V 132 15686359 15
JPM 84 11167465 -6
JNJ 76 7326703 13
WMT 56 5584105 0
Average 87 9941158 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 87 hedge funds with bullish positions and the average amount invested in these stocks was $9941 million. That figure was $19197 million in BABA’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 56 bullish hedge fund positions. Compared to these stocks Alibaba Group Holding Limited (NYSE:BABA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BABA as the stock returned 56.7% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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