How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Trade Desk, Inc. (NASDAQ:TTD) and determine whether hedge funds had an edge regarding this stock.
Is The Trade Desk, Inc. (NASDAQ:TTD) ready to rally soon? The best stock pickers were taking a bearish view. The number of bullish hedge fund positions dropped by 5 lately. The Trade Desk, Inc. (NASDAQ:TTD) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 26. Our calculations also showed that TTD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a peek at the new hedge fund action surrounding The Trade Desk, Inc. (NASDAQ:TTD).
Hedge fund activity in The Trade Desk, Inc. (NASDAQ:TTD)
At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in TTD a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the largest position in The Trade Desk, Inc. (NASDAQ:TTD). Citadel Investment Group has a $246.2 million call position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Alkeon Capital Management, led by Panayotis Takis Sparaggis, holding a $243.9 million call position; 0.6% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism include Nancy Zevenbergen’s Zevenbergen Capital Investments, D. E. Shaw’s D E Shaw and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Ogborne Capital allocated the biggest weight to The Trade Desk, Inc. (NASDAQ:TTD), around 7.2% of its 13F portfolio. Zevenbergen Capital Investments is also relatively very bullish on the stock, dishing out 5.18 percent of its 13F equity portfolio to TTD.
Since The Trade Desk, Inc. (NASDAQ:TTD) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of hedgies who were dropping their full holdings last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest position of the 750 funds tracked by Insider Monkey, valued at close to $9.4 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund said goodbye to about $6.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to The Trade Desk, Inc. (NASDAQ:TTD). We will take a look at Wayfair Inc (NYSE:W), Garmin Ltd. (NASDAQ:GRMN), Coupa Software Incorporated (NASDAQ:COUP), Royal Bank of Scotland Group plc (NYSE:RBS), Arthur J. Gallagher & Co. (NYSE:AJG), Ameriprise Financial, Inc. (NYSE:AMP), and MPLX LP (NYSE:MPLX). All of these stocks’ market caps are similar to TTD’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $1152 million. That figure was $514 million in TTD’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 5 bullish hedge fund positions. The Trade Desk, Inc. (NASDAQ:TTD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TTD is 23.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on TTD as the stock returned 27.6% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.