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Hedge Funds’ Top Tech Bets: Did They Get Them Right in Q1?

The technology sector has slightly underperformed broader market benchmarks thus far in 2016, with the S&P North American Technology Sector Index returning 0.24% year-to-date. This compares to the return of 1.09% generated by the S&P 500 Index over the same time span. The technology sector appears to have been relatively strong during the broader market sell-off earlier this year despite enduring heavy profit-taking on the part of investors amid increased worries about the strength of the U.S economy. Some analysts believe that the information technology sector will experience a new wave of mergers and acquisitions that might improve performance by reducing competition and consolidating expenses. It is also important to note that tech companies have been increasing dividend payments in recent years, which might serve as another reason for investing in this promising corner of the U.S equity market. As the labor market continues to tighten and wages continue to increase, U.S consumers may be more willing to spend on technology, which would give the technology sector two main pillars of growth: business and the consumer. Having this in mind, the following article will lay out the five most-favored technology stocks among the hedge funds tracked by Insider Monkey as of the end of 2015, as well as discuss the performance of those stocks in the first quarter of 2016.

At Insider Monkey, we track around 785 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5 Apple Inc. (NASDAQ:AAPL)

– Investors with Long Positions (as of December 31): 133

– Aggregate Value of Investors’ Holdings (as of December 31): $17.72 Billion

– Q1 Return: 4.1%

The number of hedge funds in our system with stakes in Apple Inc. (NASDAQ:AAPL) remained unchanged during the fourth quarter of 2015, with 133 funds amassing 3% of the company’s outstanding common stock. The shares of the iPhone maker gained 4.1% in the first quarter and Apple continues to play a massive role in the portfolios of both retail and large-scale investors favoring a buy-and-hold strategy. Earlier this week, Credit Suisse analyst Kulbinder Garcha reiterated his ‘Outperform’ rating on Apple and raised his price target on it to $150 from $140, saying that the services businesses of the widely-loved company represent “an underappreciated driver” for growth. The analyst anticipates that Apple’s services businesses, which include the iTunes Store, Apple Music, Apple Pay, and others, could make up 29% of the company’s gross profit by the end of 2020, compared to a current share of 15%. The Credit Suisse analyst believes that the growth within Apple’s services businesses will be propelled by the fast-increasing installed base of devices, increasing services spending per user, as well as various service opportunities for growth in the TV and video market. Although Apple’s freshly-released iPhone SE is believed to offer a lower gross profit margin than the rest of the iPhone family, the iPhone SE is anticipated to add $6.8 billion to the company’s top-line figure for the current calendar year and $0.23 in earnings per share. Carl Icahn’s Icahn Capital LP holds an ownership stake of 45.76 million shares in Apple Inc. (NASDAQ:AAPL) as of the end of the December quarter.

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Head to the following two pages to see a performance breakdown of the four most popular tech stocks among top investors.

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