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Hedge Funds Have Never Been This Bullish On Twitter Inc (TWTR)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds’ top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Twitter Inc (NYSE:TWTR).

Twitter Inc (NYSE:TWTR) has seen an increase in hedge fund sentiment recently. Our calculations also showed that TWTR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
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.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

Let’s take a peek at the fresh hedge fund action regarding Twitter Inc (NYSE:TWTR).

Hedge fund activity in Twitter Inc (NYSE:TWTR)

At Q3’s end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the second quarter of 2019. By comparison, 42 hedge funds held shares or bullish call options in TWTR a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

TWTR_nov2019

The largest stake in Twitter Inc (NYSE:TWTR) was held by AQR Capital Management, which reported holding $438.9 million worth of stock at the end of September. It was followed by D E Shaw with a $340.5 million position. Other investors bullish on the company included Renaissance Technologies, SRS Investment Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position ThornTree Capital Partners allocated the biggest weight to Twitter Inc (NYSE:TWTR), around 8.07% of its portfolio. Empirical Capital Partners is also relatively very bullish on the stock, setting aside 7.91 percent of its 13F equity portfolio to TWTR.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Coatue Management, managed by Philippe Laffont, created the most valuable position in Twitter Inc (NYSE:TWTR). Coatue Management had $133.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $44.5 million position during the quarter. The other funds with brand new TWTR positions are Gregg Moskowitz’s Interval Partners, Benjamin A. Smith’s Laurion Capital Management, and Cristan Blackman’s Empirical Capital Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Twitter Inc (NYSE:TWTR) but similarly valued. We will take a look at Barclays PLC (NYSE:BCS), Canadian Natural Resources Limited (NYSE:CNQ), Monster Beverage Corp (NASDAQ:MNST), and Tyson Foods, Inc. (NYSE:TSN). All of these stocks’ market caps are similar to TWTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCS 15 131768 3
CNQ 32 558227 8
MNST 34 2641322 -4
TSN 48 1716693 9
Average 32.25 1262003 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1262 million. That figure was $2253 million in TWTR’s case. Tyson Foods, Inc. (NYSE:TSN) 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. Compared to these stocks Twitter Inc (NYSE:TWTR) is more popular among hedge funds. 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 TWTR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TWTR were disappointed as the stock returned -27.1% 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 70 percent of these stocks already outperformed the market in Q4.

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

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