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Hedge Funds Aren’t Crazy About Twitter Inc (TWTR) Anymore

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. The S&P 500 Index ETF (SPY) lost 2.6% in the first two months of the second quarter. Ten out of 11 industry groups in the S&P 500 Index lost value in May. The average return of a randomly picked stock in the index was even worse (-3.6%). This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 20 most popular S&P 500 stocks among hedge funds not only generated positive returns but also outperformed the index by about 3 percentage points through May 30th. In this article, we will take a look at what hedge funds think about Twitter Inc (NYSE:TWTR).

Is Twitter Inc (NYSE:TWTR) a bargain? Investors who are in the know are selling. The number of bullish hedge fund bets were cut by 3 in recent months. Our calculations also showed that TWTR isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 2019 (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.

CITADEL INVESTMENT GROUP

Let’s check out the recent hedge fund action surrounding Twitter Inc (NYSE:TWTR).

What does smart money think about Twitter Inc (NYSE:TWTR)?

At the end of the first quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the fourth quarter of 2018. On the other hand, there were a total of 44 hedge funds with a bullish position in TWTR a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

No of Hedge Funds with TWTR Positions

The largest stake in Twitter Inc (NYSE:TWTR) was held by D E Shaw, which reported holding $243.6 million worth of stock at the end of March. It was followed by SRS Investment Management with a $227.6 million position. Other investors bullish on the company included Citadel Investment Group, Tremblant Capital, and Melvin Capital Management.

Since Twitter Inc (NYSE:TWTR) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedgies who sold off their full holdings heading into Q3. At the top of the heap, Philippe Laffont’s Coatue Management sold off the biggest position of all the hedgies followed by Insider Monkey, worth close to $244.1 million in call options. Panayotis Takis Sparaggis’s fund, Alkeon Capital Management, also sold off its call options, about $129 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 3 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Twitter Inc (NYSE:TWTR) but similarly valued. These stocks are Spotify Technology S.A. (NYSE:SPOT), CRH PLC (NYSE:CRH), Dollar Tree, Inc. (NASDAQ:DLTR), and Brown-Forman Corporation (NYSE:BF). All of these stocks’ market caps are closest to TWTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPOT 53 2210192 8
CRH 5 60693 -3
DLTR 48 2546741 -5
BF 24 646634 3
Average 32.5 1366065 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $1363 million in TWTR’s case. Spotify Technology S.A. (NYSE:SPOT) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 5 bullish hedge fund positions. Twitter Inc (NYSE:TWTR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on TWTR as the stock returned 13% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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