Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 26.2% through November 22nd (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 34.7% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Match Group, Inc. (NASDAQ:MTCH).
Match Group, Inc. (NASDAQ:MTCH) investors should be aware of an increase in activity from the world’s largest hedge funds of late. MTCH was in 41 hedge funds’ portfolios at the end of the third quarter of 2019. There were 31 hedge funds in our database with MTCH holdings at the end of the previous quarter. Our calculations also showed that MTCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings or see the video below for Q2 rankings).
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the recent hedge fund action surrounding Match Group, Inc. (NASDAQ:MTCH).
How have hedgies been trading Match Group, Inc. (NASDAQ:MTCH)?
Heading into the fourth quarter of 2019, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in MTCH a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Match Group, Inc. (NASDAQ:MTCH), with a stake worth $143.1 million reported as of the end of September. Trailing Renaissance Technologies was Whale Rock Capital Management, which amassed a stake valued at $130.5 million. Aristeia Capital, D E Shaw, and Light Street 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 Aristeia Capital allocated the biggest weight to Match Group, Inc. (NASDAQ:MTCH), around 7.43% of its portfolio. Light Street Capital is also relatively very bullish on the stock, setting aside 5.29 percent of its 13F equity portfolio to MTCH.
Now, key money managers have jumped into Match Group, Inc. (NASDAQ:MTCH) headfirst. Whale Rock Capital Management, managed by Alex Sacerdote, assembled the most valuable position in Match Group, Inc. (NASDAQ:MTCH). Whale Rock Capital Management had $130.5 million invested in the company at the end of the quarter. Robert Henry Lynch’s Aristeia Capital also initiated a $127.8 million position during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Christian Leone’s Luxor Capital Group, and Ryan Caldwell’s Chiron Investment Management.
Let’s now take a look at hedge fund activity in other stocks similar to Match Group, Inc. (NASDAQ:MTCH). These stocks are Northern Trust Corporation (NASDAQ:NTRS), Boston Properties, Inc. (NYSE:BXP), Vulcan Materials Company (NYSE:VMC), and Hewlett Packard Enterprise Company (NYSE:HPE). This group of stocks’ market caps are similar to MTCH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $888 million. That figure was $1107 million in MTCH’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Northern Trust Corporation (NASDAQ:NTRS) is the least popular one with only 21 bullish hedge fund positions. Match Group, Inc. (NASDAQ:MTCH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately MTCH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTCH were disappointed as the stock returned -2.2% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.