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Here’s Hedge Funds’ Fourth Most Popular Stock Pick

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Alphabet Inc (NASDAQ:GOOGL).

Is Alphabet Inc (NASDAQ:GOOGL) a buy here? The best stock pickers are getting less optimistic. The number of long hedge fund bets in GOOGL were trimmed by 18 in recent months. Nevertheless, our calculations also showed that GOOGL still ranks 4th among the 30 most popular stocks among hedge funds.

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 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.

Keith Meister, Corvex Capital

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 view the key hedge fund action encompassing Alphabet Inc (NASDAQ:GOOGL).

How are hedge funds trading Alphabet Inc (NASDAQ:GOOGL)?

At Q2’s end, a total of 129 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 125 hedge funds with a bullish position in GOOGL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GOOGL_oct2019

Among these funds, Citadel Investment Group held the most valuable stake in Alphabet Inc (NASDAQ:GOOGL), which was worth $1854.5 million at the end of the first quarter. On the second spot was Fisher Asset Management which amassed $1542 million worth of shares. Moreover, AQR Capital Management, Diamond Hill Capital, and Soroban Capital Partners were also bullish on Alphabet Inc (NASDAQ:GOOGL), allocating a large percentage of their portfolios to this stock.

Since Alphabet Inc (NASDAQ:GOOGL) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers who were dropping their entire stakes by the end of the second quarter. Intriguingly, Steve Cohen’s Point72 Asset Management cut the biggest investment of the 700 funds monitored by Insider Monkey, valued at an estimated $261.9 million in stock. Andrew Immerman and Jeremy Schiffman’s fund, Palestra Capital Management, also dumped its stock, about $180.8 million worth. These moves are important to note, as total hedge fund interest was cut by 18 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to Alphabet Inc (NASDAQ:GOOGL). These stocks are Alphabet Inc (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB), Berkshire Hathaway Inc. (NYSE:BRK-B), and Alibaba Group Holding Limited (NYSE:BABA). All of these stocks’ market caps are similar to GOOGL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GOOG 126 11503332 -7
FB 182 21452835 6
BRK-B 93 21144336 2
BABA 127 16582991 10
Average 132 17670874 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 132 hedge funds with bullish positions and the average amount invested in these stocks was $17.7 billion. That figure was $10.1 million in GOOGL’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Berkshire Hathaway Inc. (NYSE:BRK-B) is the least popular one with only 93 bullish hedge fund positions. Even though Alphabet Inc (NASDAQ:GOOGL) is not as popular as Facebook, it is still the 4th most popular stock 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. Hedge funds were also right about betting on GOOGL as the stock returned 12.8% during the third quarter and outperformed the market by an even larger margin.

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

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