Hedge Funds are Underweight Google Inc (GOOGL); Will Alphabet Change Their Sentiment?

We consider the hedge fund sentiment an important metric while assessing investment opportunities, because our research showed that, while hedge funds underperform the market in general, some of their individual stock picks are capable of generating impressive returns. However, we focus mostly on hedge funds’ small-cap ideas, because we determined that this group of stocks has the highest profitability in their equity portfolios. More specifically, in backtests our portfolio of 15 most popular small-cap stocks among hedge funds managed to beat the market by nearly one percentage point per month, while 50 mid- and large-cap picks underperformed broader indices by an average of seven basis points. Moreover, since we started tracking our strategy in real-time in August 2012, our portfolio of small-cap stocks has returned more than 123% and outperformed the S&P 500 ETF (SPY) by some 65 percentage points (read more details here).

A closer look at our data show that among the largest shareholders of Google Inc (NASDAQ:GOOGL) among the funds from our database are Andreas Halvorsen‘s Viking Global, which owned 1.64 million class A shares and 841,200 shares of class C stock and Boykin Curry’s Eagle Capital Management with 760,200 shares and 1.14 million shares of Class A and class C stocks, respectively. Other investors with long positions include Mason Hawkins’ Southeastern Asset Management, Ken Fisher’s Fisher Asset Management, and Lee Ainslie’s Maverick Capital.

Google Inc (NASDAQ:GOOGL) managed to please investors with its latest financial report in mid-July, which indicated revenue of $17.73 billion, up by 11% on the year, while its operating profit advanced by an annual 27% to $4.8 billion. As the company also managed to beat the estimates, the stock, which has been lagging until July, gained more than 10% on the back of earnings results. However, despite the gain on the back of earnings beat, the company still has a long way to go to convince smart money to be more bullish.

The new structure will make Alphabet look more like Warren Buffett‘s Berkshire Hathaway and will allow investors to get a better idea about the company from its balance sheet and income statements. Maybe this will be the move that will change hedge funds’ idea about the stock. But to see that, we have to wait until Google will report its first results under the new structure and analyze 13F filings along the way.

Disclosure: none