Hedge Funds’ #5 Stock Pick Debunked Naysayers

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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 Alphabet Inc (NASDAQ:GOOGL) 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.

Alphabet Inc (NASDAQ:GOOGL) was in 163 hedge funds’ portfolios at the end of December. GOOGL has seen an increase in hedge fund interest of late. There were 158 hedge funds in our database with GOOGL positions at the end of the previous quarter. Our calculations also showed that GOOGL ranked 5th 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).

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.


Stanley Druckenmiller of Duquesne Capital

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. Keeping this in mind let’s take a look at the key hedge fund action regarding Alphabet Inc (NASDAQ:GOOGL).

How have hedgies been trading Alphabet Inc (NASDAQ:GOOGL)?

At the end of the fourth quarter, a total of 163 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GOOGL over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Alphabet Inc (NASDAQ:GOOGL), which was worth $1967.5 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $1645.8 million worth of shares. AQR Capital Management, Diamond Hill Capital, and Adage 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 Thunderbird Partners allocated the biggest weight to Alphabet Inc (NASDAQ:GOOGL), around 29.47% of its 13F portfolio. Blacksheep Fund Management is also relatively very bullish on the stock, earmarking 28.64 percent of its 13F equity portfolio to GOOGL.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. AltaRock Partners, managed by Mark Massey, created the largest position in Alphabet Inc (NASDAQ:GOOGL). AltaRock Partners had $308.1 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management also made a $144.7 million investment in the stock during the quarter. The following funds were also among the new GOOGL investors: Chase Coleman’s Tiger Global Management LLC, Stanley Druckenmiller’s Duquesne Capital, and Andrew Hahn’s Ursa Fund Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alphabet Inc (NASDAQ:GOOGL) but similarly valued. We will take a look at Alphabet Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), and Alibaba Group Holding Limited (NYSE:BABA). This group of stocks’ market caps are closest to GOOGL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GOOG 148 16215698 0
AMZN 202 28001232 21
FB 198 24395049 6
BABA 170 22442887 10
Average 179.5 22763717 9.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 179.5 hedge funds with bullish positions and the average amount invested in these stocks was $22764 million. That figure was $13078 million in GOOGL’s case. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Alphabet Inc (NASDAQ:GOOG) is the least popular one with only 148 bullish hedge fund positions. Alphabet Inc (NASDAQ:GOOGL) is not the least popular stock in this group but hedge fund interest is still below average. 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 but beat the market by 11 percentage points. A small number of hedge funds were also right about betting on GOOGL, though not to the same extent, as the stock returned -5.8% during the same time period and outperformed 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.