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Hedge Funds Done Buying Twitter Inc (TWTR)?

In this article we will check out the progression of hedge fund sentiment towards Twitter Inc (NYSE:TWTR) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Hedge fund interest in Twitter Inc (NYSE:TWTR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TWTR to other stocks including Ford Motor Company (NYSE:F), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), and STMicroelectronics N.V. (NYSE:STM) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

APPALOOSA MANAGEMENT LP

David Tepper of Appaloosa Management LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea.  For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We interview hedge fund managers and ask them about best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the new hedge fund action regarding Twitter Inc (NYSE:TWTR).

What have hedge funds been doing with Twitter Inc (NYSE:TWTR)?

At the end of the first quarter, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TWTR over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Coatue Management was the largest shareholder of Twitter Inc (NYSE:TWTR), with a stake worth $163.1 million reported as of the end of September. Trailing Coatue Management was Appaloosa Management LP, which amassed a stake valued at $135.8 million. Citadel Investment Group, Southpoint Capital Advisors, and Tremblant Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Empirical Capital Partners allocated the biggest weight to Twitter Inc (NYSE:TWTR), around 8.89% of its 13F portfolio. Harspring Capital Management is also relatively very bullish on the stock, setting aside 7.14 percent of its 13F equity portfolio to TWTR.

Because Twitter Inc (NYSE:TWTR) has experienced falling interest from hedge fund managers, it’s easy to see that there is a sect of money managers that decided to sell off their full holdings heading into Q4. Intriguingly, Josh Resnick’s Jericho Capital Asset Management cut the largest investment of the 750 funds followed by Insider Monkey, totaling close to $59.1 million in stock. Karthik Sarma’s fund, SRS Investment Management, also said goodbye to its stock, about $48.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Twitter Inc (NYSE:TWTR). These stocks are Ford Motor Company (NYSE:F), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), STMicroelectronics N.V. (NYSE:STM), and PPL Corporation (NYSE:PPL). This group of stocks’ market valuations are similar to TWTR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
F 33 667079 -3
TLK 7 151891 -1
STM 11 70106 -6
PPL 28 311688 -4
Average 19.75 300191 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $990 million in TWTR’s case. Ford Motor Company (NYSE:F) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Twitter Inc (NYSE:TWTR) is more popular among hedge funds. 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 returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on TWTR as the stock returned 32.8% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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