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Here’s The #1 Stock Among Hedge Funds

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Amazon.com, Inc. (NASDAQ:AMZN) and compare it against mega-cap stocks like Alphabet Inc (NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT), Apple Inc (NASDAQ:AAPL), Alibaba Group Holding Limited (NYSE:BABA), and Facebook Inc (NASDAQ:FB).

Amazon.com, Inc. (NASDAQ:AMZN) was in 251 hedge funds’ portfolios at the end of the first quarter of 2020. AMZN investors should be aware of a huge increase in hedge fund interest recently. There were 202 hedge funds in our database with AMZN holdings at the end of the previous quarter. Our calculations also showed that AMZN is the #1 stock among the 30 most popular stocks among hedge funds (click for Q1 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 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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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, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the fresh hedge fund action surrounding Amazon.com, Inc. (NASDAQ:AMZN).

What have hedge funds been doing with Amazon.com, Inc. (NASDAQ:AMZN)?

At Q1’s end, a total of 251 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the previous quarter. By comparison, 166 hedge funds held shares or bullish call options in AMZN a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Amazon.com, Inc. (NASDAQ:AMZN), which was worth $5250.8 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $3157.2 million worth of shares. Eagle Capital Management, Viking Global, and Lone Pine Capital 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 VGI Partners allocated the biggest weight to Amazon.com, Inc. (NASDAQ:AMZN), around 21.2% of its 13F portfolio. Tairen Capital is also relatively very bullish on the stock, earmarking 20.58 percent of its 13F equity portfolio to AMZN.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Egerton Capital Limited, managed by John Armitage, initiated the most valuable position in Amazon.com, Inc. (NASDAQ:AMZN). Egerton Capital Limited had $840.9 million invested in the company at the end of the quarter. Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners also initiated a $594.7 million position during the quarter. The other funds with brand new AMZN positions are Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management, Josh Donfeld and David Rogers’s Castle Hook Partners, and Josh Resnick’s Jericho Capital Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Amazon.com, Inc. (NASDAQ:AMZN) but similarly valued. These stocks are Alphabet Inc (NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT), Apple Inc (NASDAQ:AAPL), Alibaba Group Holding Limited (NYSE:BABA), and Facebook Inc (NASDAQ:FB). This group of stocks’ market caps are similar to AMZN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GOOGL 167 11083440 4
MSFT 235 31438783 46
BABA 167 19433098 -3
FB 213 19600111 15
AAPL 123 74756340 4

View table here if you experience formatting issues.

As you can see the only stock that comes close to AMZN’s popularity is Microsoft Corporation (NASDAQ:MSFT). Facebook Inc (NASDAQ:FB) is also extremely popular among hedge funds. On the other hand Apple Inc (NASDAQ:AAPL) and Alibaba Group Holding Limited (NYSE:BABA) are among the least popular stocks in this list. Compared to these stocks Amazon.com, Inc. (NASDAQ:AMZN) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about snapping up AMZN shares as the stock returned 25.3% so far in Q2 (through the end of May) 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.

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