Hedge Funds’ #7 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 even though the mainstream financial media journalists don’t agree with this approach. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Visa Inc (NYSE:V).

Visa Inc (NYSE:V) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. Nevertheless our calculations still showed that V ranked 7th 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). Visa has been consistently among the top 10 hedge fund stocks since 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.


Louis Bacon Moore of Moore 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. With all of this in mind let’s analyze the fresh hedge fund action encompassing Visa Inc (NYSE:V).

What have hedge funds been doing with Visa Inc (NYSE:V)?

At the end of the fourth quarter, a total of 143 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. By comparison, 128 hedge funds held shares or bullish call options in V a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the most valuable position in Visa Inc (NYSE:V), worth close to $3.7961 billion, comprising 3.8% of its total 13F portfolio. The second most bullish fund manager is Warren Buffett of Berkshire Hathaway, with a $1.9847 billion position; 0.8% of its 13F portfolio is allocated to the company. Remaining peers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Charles Akre’s Akre Capital Management and Rajiv Jain’s GQG Partners. In terms of the portfolio weights assigned to each position Hengistbury Investment Partners allocated the biggest weight to Visa Inc (NYSE:V), around 39.28% of its 13F portfolio. Truvvo Partners is also relatively very bullish on the stock, earmarking 19.94 percent of its 13F equity portfolio to V.

Judging by the fact that Visa Inc (NYSE:V) has faced declining sentiment from hedge fund managers, we can see that there exists a select few money managers who sold off their positions entirely last quarter. It’s worth mentioning that Stanley Druckenmiller’s Duquesne Capital cut the largest stake of the 750 funds watched by Insider Monkey, comprising about $93.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $62.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Visa Inc (NYSE:V). These stocks are Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), Bank of America Corporation (NYSE:BAC), and Berkshire Hathaway Inc. (NYSE:BRK-B). This group of stocks’ market values are closest to V’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JNJ 85 8257996 1
WMT 52 5252501 -6
BAC 99 38412092 -4
BRK-B 113 23616180 2
Average 87.25 18884692 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 87.25 hedge funds with bullish positions and the average amount invested in these stocks was $18885 million. That figure was $16812 million in V’s case. Berkshire Hathaway Inc. (NYSE:BRK-B) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 52 bullish hedge fund positions. Compared to these stocks Visa Inc (NYSE:V) 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 V wasn’t nearly as successful as these 10 stocks and hedge funds that were betting on V were disappointed as the stock returned -12.5% during the first 3.5 months of 2020 (through April 20th) and underperformed the market. This was a temporary underperformance though. Visa shares actually returned more than 25% since the end of 2018 and beat the dumb index funds by 20 percentage points, debunking hedge fund naysayers.
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.