Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards SAP SE (NYSE:SAP).
Is SAP SE (NYSE:SAP) a buy right now? The smart money is getting more bullish. The number of long hedge fund bets inched up by 9 recently. Our calculations also showed that SAP isn’t among the 30 most popular stocks among hedge funds. SAP was in 17 hedge funds’ portfolios at the end of the second quarter of 2019. There were 8 hedge funds in our database with SAP positions at the end of the previous quarter.
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.
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. We’re going to take a look at the fresh hedge fund action regarding SAP SE (NYSE:SAP).
Hedge fund activity in SAP SE (NYSE:SAP)
At Q2’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 113% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in SAP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in SAP SE (NYSE:SAP), which was worth $1014 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $153.2 million worth of shares. Moreover, Elliott Management, Holocene Advisors, and Adage Capital Management were also bullish on SAP SE (NYSE:SAP), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, assembled the most outsized position in SAP SE (NYSE:SAP). Holocene Advisors had $76.5 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also initiated a $47.9 million position during the quarter. The other funds with new positions in the stock are David Fiszel’s Honeycomb Asset Management, Israel Englander’s Millennium Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as SAP SE (NYSE:SAP) but similarly valued. These stocks are The Unilever Group (NYSE:UL), Netflix, Inc. (NASDAQ:NFLX), Citigroup Inc. (NYSE:C), and The Unilever Group (NYSE:UN). This group of stocks’ market values match SAP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UL | 10 | 424712 | -3 |
| NFLX | 106 | 11090012 | 10 |
| C | 83 | 10543687 | -4 |
| UN | 16 | 1291383 | -3 |
| Average | 53.75 | 5837449 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.75 hedge funds with bullish positions and the average amount invested in these stocks was $5837 million. That figure was $1479 million in SAP’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UL) is the least popular one with only 10 bullish hedge fund positions. SAP SE (NYSE:SAP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SAP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SAP investors were disappointed as the stock returned -13.8% during the third quarter 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 in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
