Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Alphabet Inc (NASDAQ:GOOGL).
Alphabet Inc (NASDAQ:GOOGL) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Alphabet Inc (NASDAQ:GOOGL) was in 162 hedge funds’ portfolios at the end of September. The all time high for this statistics is 167. There were 157 hedge funds in our database with GOOGL holdings at the end of June. Our calculations also showed that GOOGL ranked #5 among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to review the key hedge fund action surrounding Alphabet Inc (NASDAQ:GOOGL).
How are hedge funds trading Alphabet Inc (NASDAQ:GOOGL)?
At Q3’s end, a total of 162 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the second quarter of 2020. By comparison, 158 hedge funds held shares or bullish call options in GOOGL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Alphabet Inc (NASDAQ:GOOGL) was held by Citadel Investment Group, which reported holding $2350.4 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $2319.1 million position. Other investors bullish on the company included AQR Capital Management, Alkeon Capital Management, and AltaRock Partners. In terms of the portfolio weights assigned to each position AltaRock Partners allocated the biggest weight to Alphabet Inc (NASDAQ:GOOGL), around 24.95% of its 13F portfolio. TenCore Partners is also relatively very bullish on the stock, earmarking 20.27 percent of its 13F equity portfolio to GOOGL.
As industrywide interest jumped, some big names were leading the bulls’ herd. Viking Global, managed by Andreas Halvorsen, assembled the most outsized position in Alphabet Inc (NASDAQ:GOOGL). Viking Global had $281.3 million invested in the company at the end of the quarter. Leon Cooperman’s Omega Advisors also initiated a $87.9 million position during the quarter. The following funds were also among the new GOOGL investors: Dmitry Balyasny’s Balyasny Asset Management, Kevin Cottrell and Chris LaSusa’s KCL Capital, and Jack Woodruff’s Candlestick Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alphabet Inc (NASDAQ:GOOGL) but similarly valued. We will take a look at Alibaba Group Holding Limited (NYSE:BABA), Facebook Inc (NASDAQ:FB), Visa Inc (NYSE:V), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Berkshire Hathaway Inc. (NYSE:BRK-B), Tesla Inc. (NASDAQ:TSLA), and Walmart Inc. (NYSE:WMT). This group of stocks’ market valuations resemble GOOGL’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 124 hedge funds with bullish positions and the average amount invested in these stocks was $16860 million. That figure was $14714 million in GOOGL’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 67 bullish hedge fund positions. Alphabet Inc (NASDAQ:GOOGL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GOOGL is 84.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. Hedge funds were also right about betting on GOOGL as the stock returned 17.9% since the end of Q3 (through 11/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.