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Hedge Funds Bought Tesla Inc. (TSLA) Just Before Strong Gains in Share Price

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Tesla Inc. (NASDAQ:TSLA).

Is Tesla Inc. (NASDAQ:TSLA) an attractive stock to buy now? Hedge funds are turning bullish. The number of long hedge fund positions rose by 5 in recent months. Our calculations also showed that TSLA isn’t among the 30 most popular stocks among hedge funds (see the video below). TSLA was in 37 hedge funds’ portfolios at the end of the second quarter of 2019. There were 32 hedge funds in our database with TSLA holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gil Simon of SoMa Equity Partners

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the new hedge fund action surrounding Tesla Inc. (NASDAQ:TSLA).

What have hedge funds been doing with Tesla Inc. (NASDAQ:TSLA)?

At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in TSLA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

TSLA_oct2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest call position in Tesla Inc. (NASDAQ:TSLA), worth close to $992.7 million, corresponding to 0.5% of its total 13F portfolio. The second largest stake is also held by Citadel Investment Group holding a $239.1 million equity position; 0.1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism encompass Mike Masters’s Masters Capital Management, Gil Simon’s SoMa Equity Partners and Michel Massoud’s Melqart Asset Management.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Melqart Asset Management, managed by Michel Massoud, created the biggest call position in Tesla Inc. (NASDAQ:TSLA). Melqart Asset Management had $55.9 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also initiated a $55.5 million position during the quarter. The following funds were also among the new TSLA investors: Kenneth Mario Garschina’s Mason Capital Management, Frank Brosens’s Taconic Capital, and Gil Simon’s SoMa Equity Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Tesla Inc. (NASDAQ:TSLA) but similarly valued. These stocks are Travelers Companies Inc (NYSE:TRV), Worldpay, Inc. (NYSE:WP), Roper Industries, Inc. (NYSE:ROP), and Edwards Lifesciences Corporation (NYSE:EW). This group of stocks’ market values resemble TSLA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRV 26 1391312 -3
WP 84 5780416 9
ROP 35 944295 13
EW 33 873482 8
Average 44.5 2247376 6.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.5 hedge funds with bullish positions and the average amount invested in these stocks was $2247 million. That figure was $711 million in TSLA’s case. Worldpay, Inc. (NYSE:WP) is the most popular stock in this table. On the other hand Travelers Companies Inc (NYSE:TRV) is the least popular one with only 26 bullish hedge fund positions. Tesla Inc. (NASDAQ:TSLA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TSLA as the stock returned 7.8% during the same time frame and outperformed the market by an even larger margin.

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

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