How do you pick the next stock to invest in? We know coronavirus is probably the #1 concern in your mind right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is actually a 3.3% probability that president Donald Trump will die from the new coronavirus (see the details). Coronavirus will probably cause a short recession and then things will get back to business as usual. That’s why we believe you should use this opportunity to identify the best stocks to invest for the future and add them to your portfolio at increasingly attractive prices. How do we find high quality stocks? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Visa Inc (NYSE:V).
Visa Inc (NYSE:V) has experienced a decrease in support from the world’s most elite money managers lately. V was in 143 hedge funds’ portfolios at the end of December. There were 147 hedge funds in our database with V holdings at the end of the previous quarter. Our calculations also showed that V ranked 7th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 S&P 500 ETFs by 41 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 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.
We leave no stone unturned when looking for the next great investment idea. For example this gold mining company is acquiring gold mines in Americas at a fraction of the cost of drilling them, so we look into its viability. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s review the fresh hedge fund action surrounding Visa Inc (NYSE:V).
Hedge fund activity in Visa Inc (NYSE:V)
Heading into the first quarter of 2020, a total of 143 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards V over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Visa Inc (NYSE:V), with a stake worth $3796.1 million reported as of the end of September. Trailing Fisher Asset Management was Berkshire Hathaway, which amassed a stake valued at $1984.7 million. Arrowstreet Capital, Akre Capital Management, and GQG Partners 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 Hengistbury Investment Partners allocated the biggest weight to Visa Inc (NYSE:V), around 39.28% of its 13F portfolio. Truvvo Partners is also relatively very bullish on the stock, earmarking 19.94 percent of its 13F equity portfolio to V.
Because Visa Inc (NYSE:V) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few fund managers who were dropping their entire stakes last quarter. It’s worth mentioning that Stanley Druckenmiller’s Duquesne Capital dropped the biggest investment of the 750 funds followed by Insider Monkey, comprising about $93.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $62.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s also examine 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), Bank of America Corporation (NYSE:BAC), and Berkshire Hathaway Inc. (NYSE:BRK-B). This group of stocks’ market valuations are similar to V’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 87.25 hedge funds with bullish positions and the average amount invested in these stocks was $18885 million. That figure was $16812 million in V’s case. Berkshire Hathaway Inc. (NYSE:BRK-B) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 52 bullish hedge fund positions. Compared to these stocks Visa Inc (NYSE:V) is more popular among hedge funds. 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 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Hedge funds were also right about betting on V as the stock returned 2.5% so far in Q1 (through March 2nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.