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Hedge Funds Have Never Been This Bullish On Shopify Inc (SHOP)

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Shopify Inc (NYSE:SHOP). There are currently two ETFs with 4+% weight in SHOP: Global X E-commerce ETF (NASDAQ:EBIZ) and Global X Cloud Computing ETF Global X Cloud Computing ETF (NASDAQ:CLOU).

Shopify Inc (NYSE:SHOP) has experienced an increase in support from the world’s most elite money managers lately. SHOP was in 34 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with SHOP holdings at the end of the previous quarter. Our calculations also showed that SHOP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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 glance at the new hedge fund action regarding Shopify Inc (NYSE:SHOP).

How are hedge funds trading Shopify Inc (NYSE:SHOP)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in SHOP a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with SHOP Positions

Of the funds tracked by Insider Monkey, Lone Pine Capital has the largest position in Shopify Inc (NYSE:SHOP), worth close to $429.2 million, amounting to 2.5% of its total 13F portfolio. The second largest stake is held by Abdiel Capital Advisors, managed by Colin Moran, which holds a $362.5 million position; 22.3% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism comprise John Overdeck and David Siegel’s Two Sigma Advisors, Christopher Lyle’s SCGE Management and Alex Sacerdote’s Whale Rock Capital Management. In terms of the portfolio weights assigned to each position Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 26.81% of its portfolio. Abdiel Capital Advisors is also relatively very bullish on the stock, designating 22.26 percent of its 13F equity portfolio to SHOP.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, established the largest position in Shopify Inc (NYSE:SHOP). Alkeon Capital Management had $134 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also initiated a $66.2 million position during the quarter. The other funds with brand new SHOP positions are Panayotis Takis Sparaggis’s Alkeon Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Jeffrey Talpins’s Element Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Shopify Inc (NYSE:SHOP) but similarly valued. We will take a look at Equity Residential (NYSE:EQR), Advanced Micro Devices, Inc. (NASDAQ:AMD), Twitter Inc (NYSE:TWTR), and Barclays PLC (NYSE:BCS). This group of stocks’ market caps are similar to SHOP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQR 23 196497 0
AMD 56 1135132 15
TWTR 50 2252822 3
BCS 15 131768 3
Average 36 929055 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $929 million. That figure was $2510 million in SHOP’s case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 15 bullish hedge fund positions. Shopify Inc (NYSE:SHOP) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SHOP, though not to the same extent, as the stock returned 8.1% during the first two months of the fourth quarter and outperformed the market.

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

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