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Hedge Funds Are Betting On Shopify Inc (SHOP)

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow over 700 of the best-performing investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Shopify Inc (NYSE:SHOP), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Shopify Inc (NYSE:SHOP) investors should pay attention to an increase in enthusiasm from smart money in recent months. SHOP was in 28 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with SHOP holdings at the end of the previous quarter. Our calculations also showed that SHOP isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

COATUE MANAGEMENT

We’re going to take a look at the fresh hedge fund action surrounding Shopify Inc (NYSE:SHOP).

What does the smart money think about Shopify Inc (NYSE:SHOP)?

Heading into the fourth quarter of 2018, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SHOP over the last 13 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

SHOP_dec2018

The largest stake in Shopify Inc (NYSE:SHOP) was held by Coatue Management, which reported holding $405.1 million worth of stock at the end of September. It was followed by Abdiel Capital Advisors with a $278.7 million position. Other investors bullish on the company included Whale Rock Capital Management, SCGE Management, and Citadel Investment Group.

As aggregate interest increased, some big names were leading the bulls’ herd. Hitchwood Capital Management, managed by James Crichton, created the largest position in Shopify Inc (NYSE:SHOP). Hitchwood Capital Management had $29.6 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also initiated a $10.2 million position during the quarter. The following funds were also among the new SHOP investors: Dan Sobol and Lisa Hess’s SkyTop Capital Management, James Dondero’s Highland Capital Management, and Richard Driehaus’s Driehaus Capital.

Let’s also examine hedge fund activity in other stocks similar to Shopify Inc (NYSE:SHOP). These stocks are Comerica Incorporated (NYSE:CMA), Discovery, Inc. (NASDAQ:DISCK), Magellan Midstream Partners, L.P. (NYSE:MMP), and Ameren Corporation (NYSE:AEE). This group of stocks’ market caps resemble SHOP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMA 37 927907 -6
DISCK 34 1260560 4
MMP 14 73929 0
AEE 21 684395 5
Average 26.5 736698 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $737 million. That figure was $1.26 billion in SHOP’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand Magellan Midstream Partners, L.P. (NYSE:MMP) is the least popular one with only 14 bullish hedge fund positions. Shopify Inc (NYSE:SHOP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CMA might be a better candidate to consider a long position.

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

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