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Hedge Fund Hotels: Facebook Inc (FB) in 2020

Hedge funds started to disclose their holdings at the end of 2019 in new 13F filings. They have 45 days from the end of each quarter to disclose their positions in publicly traded US stocks, options, and convertible debt. Insider Monkey tracks more than 750 hedge funds and usually more than half of these hedge funds will wait until the last day to file their 13Fs with the SEC. Fortunately, our experience shows that aggregate hedge fund sentiment towards most stocks don’t change much. In this article we are going to take a look at how hedge funds have been feeling about a stock like Facebook Inc (NASDAQ:FB) and compare its performance against hedge funds’ favorite stocks.

Hedge fund sentiment towards Facebook Inc (NASDAQ:FB) has been changing at the margin, but overall Facebook occupied the #1 spot among the 30 most popular stocks among hedge funds during the last four quarters (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that historically hedge funds’ stock picks outperformed the market by a large margin. That’s why hedge fund industry became a $3 trillion industry. However,  you can’t outperform the market by replicating the entire portfolio of an average hedge fund anymore. Luckily Insider Monkey came up with proprietary algorithms to identify the best stock picks of the best hedge fund managers. We have been sharing a portfolio of around 15 hand picked stocks in our monthly newsletter since March 2017 and generated a cumulative return of 87% vs. 47.7% S&P 500 ETFs during the same period (see the details here).

We leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap trading at an enterprise value/operating profit ratio of 1 (this isn’t a typo). In January, we recommended a position in a dividend stock with a PE ratio of less than 7 that is growing its earnings and yields 11%. Now we’re going to go over the recent hedge fund action surrounding Facebook Inc (NASDAQ:FB).

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Hedge fund activity in Facebook Inc (NASDAQ:FB)

At the end of the third quarter, a total of 179 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FB over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Tiger Global Management held the most valuable stake in Facebook Inc (NASDAQ:FB), which was worth $1998.3 million at the end of the third quarter. On the second spot was Viking Global which amassed $1110.5 million worth of shares. AQR Capital Management, Renaissance Technologies, and Eagle Capital Management 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 Harvard Management Co allocated the biggest weight to Facebook Inc (NASDAQ:FB), around 37.61% of its 13F portfolio. Immersion Capital is also relatively very bullish on the stock, designating 30.65 percent of its 13F equity portfolio to FB.

Since Facebook Inc (NASDAQ:FB) has faced declining sentiment from the smart money, it’s safe to say that there is a sect of money managers that slashed their entire stakes by the end of the third quarter. At the top of the heap, Karthik Sarma’s SRS Investment Management cut the biggest position of the 750 funds watched by Insider Monkey, comprising about $447.4 million in stock, and Glenn Greenberg’s Brave Warrior Capital was right behind this move, as the fund cut about $111.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Facebook Inc (NASDAQ:FB) but similarly valued. These stocks are Alibaba Group Holding Limited (NYSE:BABA), Visa Inc (NYSE:V), JPMorgan Chase & Co. (NYSE:JPM), and Johnson & Johnson (NYSE:JNJ). This group of stocks’ market values match FB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BABA 149 19197070 22
V 132 15686359 15
JPM 84 11167465 -6
JNJ 76 7326703 13
Average 110.25 13344399 11

View table here if you experience formatting issues.

As you can see these stocks had an average of 110.25 hedge funds with bullish positions and the average amount invested in these stocks was $13344 million. That figure was $20837 million in FB’s case. Alibaba Group Holding Limited (NYSE:BABA) is the most popular stock in this table. On the other hand Johnson & Johnson (NYSE:JNJ) is the least popular one with only 76 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 4.5% in 2020 and outperformed the S&P 500 ETF (SPY) by 3 percentage points. These stocks also outperformed the market by 10 percentage points in 2019. Hedge funds were also right about betting on FB as the stock returned 8.8% through January 29th, though the stock gave back some of these gains this morning after a disappointing earnings announcement.  We believe this is a buying opportunity as Facebook is still growing its topline at a 25% rate, yet have a similar forward PE ratio to the market.
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.

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