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Hedge Funds’ #2 Stock Pick Debunked Naysayers

“I have been following Dr. Inan Dogan since this outbreak, and he is  a phenomenally intelligent researcher. One month ago, Dr. Dogan’s prediction that the total U.S. death toll would be 20,000+ by April 15th was deemed “radical”. His Recession is Imminent article in February was very timely. Now he believes we could quickly end lockdowns in NYC after some simple testing. A must read” were the words used by our readers to describe our latest article.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Facebook Inc (NASDAQ:FB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas (even though the mainstream financial media journalists don’t agree with this approach). There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Facebook Inc (NASDAQ:FB) investors should be aware of an increase in hedge fund interest recently. Our calculations also showed that FB ranked #2 among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). Facebook has also consistently been among the top 5 hedge fund picks since at least the end of 2018.

If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the key hedge fund action encompassing Facebook Inc (NASDAQ:FB).

What does smart money think about Facebook Inc (NASDAQ:FB)?

At Q4’s end, a total of 198 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. On the other hand, there were a total of 161 hedge funds with a bullish position in FB a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Facebook Inc (NASDAQ:FB) was held by Tiger Global Management LLC, which reported holding $1707.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $1611.8 million position. Other investors bullish on the company included Eagle Capital Management, Viking Global, and AQR Capital Management. In terms of the portfolio weights assigned to each position ADW Capital allocated the biggest weight to Facebook Inc (NASDAQ:FB), around 38.44% of its 13F portfolio. Thunderbird Partners is also relatively very bullish on the stock, earmarking 36.83 percent of its 13F equity portfolio to FB.

As aggregate interest increased, key hedge funds have jumped into Facebook Inc (NASDAQ:FB) headfirst. Steadfast Capital Management, managed by Robert Pitts, created the largest position in Facebook Inc (NASDAQ:FB). Steadfast Capital Management had $219.5 million invested in the company at the end of the quarter. Michael Pausic’s Foxhaven Asset Management also initiated a $153.5 million position during the quarter. The other funds with new positions in the stock are Jeffrey Altman’s Owl Creek Asset Management, David Gallo’s Valinor Management LLC, and Michael Rockefeller and Karl Kroeker’s Woodline Partners.

Let’s now review hedge fund activity in other stocks similar to Facebook Inc (NASDAQ:FB). We will take a look at Alibaba Group Holding Limited (NYSE:BABA), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), and Johnson & Johnson (NYSE:JNJ). All of these stocks’ market caps match FB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BABA 170 22442887 10
JPM 98 13134286 4
V 143 16812443 -4
JNJ 85 8257996 1
Average 124 15161903 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 124 hedge funds with bullish positions and the average amount invested in these stocks was $15162 million. That figure was $24395 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 85 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately FB wasn’t nearly as successful as these 10 stocks and hedge funds that were betting on FB were disappointed as the stock returned -13.2% during the three months of 2020 (through April 20th) and underperformed the market by 1.2 percentage points. However, that was just a temporary underperformance. FB shares returned  more than 35% since the end of 2018 and beat the market by 30 percentage points. Now that’s what we call stock picking skill.
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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