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Were Hedge Funds Right About Piling Into Visa Inc (V)?

We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Visa Inc (NYSE:V) and determine whether the smart money was really smart about this stock.

Is Visa Inc (NYSE:V) a bargain? Money managers were taking a bullish view at the end of the first quarter. The number of bullish hedge fund positions improved by 14. Our calculations also showed that V ranks 6th 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). V was in 157 hedge funds’ portfolios at the end of March. There were 143 hedge funds in our database with V 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 58 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.

Warren Buffett

Warren Buffett of Berkshire Hathaway

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the recent hedge fund action encompassing Visa Inc (NYSE:V).

What have hedge funds been doing with Visa Inc (NYSE:V)?

At the end of the first quarter, a total of 157 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 124 hedge funds with a bullish position in V a year ago. So, let’s find 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 Visa Inc (NYSE:V), which was worth $3273.8 million at the end of the third quarter. On the second spot was Berkshire Hathaway which amassed $1701.8 million worth of shares. Akre Capital Management, Lone Pine Capital, and Citadel Investment Group 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 Nokota Management allocated the biggest weight to Visa Inc (NYSE:V), around 100% of its 13F portfolio. Hengistbury Investment Partners is also relatively very bullish on the stock, designating 38.37 percent of its 13F equity portfolio to V.

Consequently, some big names were breaking ground themselves. Lone Pine Capital, established the most valuable position in Visa Inc (NYSE:V). Lone Pine Capital had $536.5 million invested in the company at the end of the quarter. Ric Dillon’s Diamond Hill Capital also initiated a $182.9 million position during the quarter. The following funds were also among the new V investors: Michael Pausic’s Foxhaven Asset Management, Sharlyn C. Heslam’s Stockbridge Partners, and Eashwar Krishnan’s Tybourne Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Visa Inc (NYSE:V) but similarly valued. We will take a look at Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), JPMorgan Chase & Co. (NYSE:JPM), and The Procter & Gamble Company (NYSE:PG). This group of stocks’ market caps are closest to V’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JNJ 82 5454317 -3
WMT 55 4887227 3
JPM 112 9730557 14
PG 77 9519275 -2
Average 81.5 7397844 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 81.5 hedge funds with bullish positions and the average amount invested in these stocks was $7398 million. That figure was $14391 million in V’s case. JPMorgan Chase & Co. (NYSE:JPM) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 55 bullish hedge fund positions. Compared to these stocks Visa Inc (NYSE:V) 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 gained 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on V, though not to the same extent, as the stock returned 20.6% in Q2 (through June 25th) and outperformed the market as well.

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