Hedge Funds Dumped Snap Inc. (SNAP) During The Crash

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Snap Inc. (NYSE:SNAP) based on those filings.

Is Snap Inc. (NYSE:SNAP) a first-rate investment today? Hedge funds are turning less bullish. The number of long hedge fund bets dropped by 18 lately. Our calculations also showed that SNAP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). SNAP was in 48 hedge funds’ portfolios at the end of March. There were 66 hedge funds in our database with SNAP positions at the end of the previous quarter.

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.

Ken Griffin

Ken Griffin of Citadel Investment Group

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 successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Snap Inc. (NYSE:SNAP).

Hedge fund activity in Snap Inc. (NYSE:SNAP)

Heading into the second quarter of 2020, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in SNAP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Is SNAP A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Snap Inc. (NYSE:SNAP), with a stake worth $143.5 million reported as of the end of September. Trailing Citadel Investment Group was Slate Path Capital, which amassed a stake valued at $114 million. Samlyn Capital, Dorsal Capital Management, and D E Shaw 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 Slate Path Capital allocated the biggest weight to Snap Inc. (NYSE:SNAP), around 8.74% of its 13F portfolio. Dorsal Capital Management is also relatively very bullish on the stock, setting aside 6.52 percent of its 13F equity portfolio to SNAP.

Due to the fact that Snap Inc. (NYSE:SNAP) has witnessed falling interest from the smart money, logic holds that there were a few funds that slashed their entire stakes in the third quarter. Interestingly, James Crichton’s Hitchwood Capital Management cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $56 million in stock, and Alex Sacerdote’s Whale Rock Capital Management was right behind this move, as the fund said goodbye to about $52.4 million worth. These moves are interesting, as total hedge fund interest was cut by 18 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Snap Inc. (NYSE:SNAP) but similarly valued. These stocks are Tencent Music Entertainment Group (NYSE:TME), Simon Property Group, Inc (NYSE:SPG), CMS Energy Corporation (NYSE:CMS), and Parker-Hannifin Corporation (NYSE:PH). This group of stocks’ market caps are closest to SNAP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TME 25 455610 -1
SPG 29 419445 3
CMS 28 421101 -2
PH 32 889095 -7
Average 28.5 546313 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $546 million. That figure was $930 million in SNAP’s case. Parker-Hannifin Corporation (NYSE:PH) is the most popular stock in this table. On the other hand Tencent Music Entertainment Group (NYSE:TME) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Snap Inc. (NYSE:SNAP) 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 SNAP as the stock returned 48.6% 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.

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