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Here is How Hedge Funds’ Most Popular Stock Performed in Q3

Hedge Funds and other institutional investors have recenty completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their top picks is Facebook Inc (NASDAQ:FB), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Facebook Inc (NASDAQ:FB) shareholders have witnessed an increase in activity from the world’s largest hedge funds during the second quarter. Our calculations also showed that FB ranks #1 among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

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 encompassing Facebook Inc (NASDAQ:FB).

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How have hedgies been trading Facebook Inc (NASDAQ:FB)?

At Q2’s end, a total of 182 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the first quarter of 2019. By comparison, 193 hedge funds held shares or bullish call options in FB a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

FB_2019Q2 Hedge Fund Sentiment

Of the funds tracked by Insider Monkey, Tiger Global Management LLC, managed by Chase Coleman, holds the biggest position in Facebook Inc (NASDAQ:FB). Tiger Global Management LLC has a $1.7322 billion position in the stock, comprising 9.4% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $1.6309 billion call position; 0.7% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism contain Andreas Halvorsen’s Viking Global, Cliff Asness’s AQR Capital Management and Boykin Curry’s Eagle Capital Management.

As one would reasonably expect, some big names have jumped into Facebook Inc (NASDAQ:FB) headfirst. SRS Investment Management, managed by Karthik Sarma, initiated the biggest call position in Facebook Inc (NASDAQ:FB). SRS Investment Management had $447.4 million invested in the company at the end of the quarter. John Armitage’s Egerton Capital Limited also made a $332.9 million investment in the stock during the quarter. The other funds with new positions in the stock are OZ Management, Anand Desai’s Darsana Capital Partners, and Panayotis Takis Sparaggis’s Alkeon Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Facebook Inc (NASDAQ:FB) but similarly valued. These stocks are Berkshire Hathaway Inc. (NYSE:BRK-B), Alibaba Group Holding Limited (NYSE:BABA), Visa Inc (NYSE:V), and Johnson & Johnson (NYSE:JNJ). All of these stocks’ market caps match FB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRK-B 93 21144336 2
BABA 127 16582991 10
V 117 15186566 -7
JNJ 63 6757234 -6
Average 100 14917782 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 100 hedge funds with bullish positions and the average amount invested in these stocks was $14918 million. That figure was $21453 million in FB’s case. Alibaba Group Holding Limited (NYSE:BABA) is the most popular stock in this table. On the other hand Johnson & Johnson (NYSE:JNJ) is the least popular one with only 63 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. 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. Even though FB shares lost 7.7% during the third quarter, the stock still delivered a year-to-date return of 35.8% and outperformed the market by an even larger margin.

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

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