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How Apple Inc and Other Hedge Fund Favorites Performed in Q2

Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:

“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”

“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.

It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.

The #11 most popular stock among the 743 hedge funds tracked by Insider Monkey was Apple Inc. (NASDAQ:AAPL).  Apple was also the seventh most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).

We have to warn you against indiscriminately imitating hedge funds’ all stock picks. Hedge funds’ top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds’ top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund’s 35th best idea doesn’t give you the same return as investing in a hedge fund’s best idea.

Warren Buffett

Warren Buffett

We’re going to take a look at the key hedge fund action surrounding Apple Inc. (NASDAQ:AAPL).

What does smart money think about Apple Inc. (NASDAQ:AAPL)?

At Q1’s end, a total of 98 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AAPL over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AAPL_may2019

When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the number one position in Apple Inc. (NASDAQ:AAPL), worth close to $47.4095 billion, amounting to 23.8% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $2.3818 billion call position; 1.2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism consist of Ken Fisher’s Fisher Asset Management, Cliff Asness’s AQR Capital Management and D. E. Shaw’s D E Shaw.

Because Apple Inc. (NASDAQ:AAPL) has experienced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds who were dropping their entire stakes heading into Q3. Interestingly, Jim Simons’s Renaissance Technologies dropped the largest stake of the 700 funds watched by Insider Monkey, worth an estimated $435.4 million in stock, and Philippe Laffont’s Coatue Management was right behind this move, as the fund dumped about $88.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 18 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Apple Inc. (NASDAQ:AAPL) but similarly valued. These stocks are Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Alphabet Inc (NASDAQ:GOOG), and Berkshire Hathaway Inc. (NYSE:BRK-B). This group of stocks’ market caps are similar to AAPL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMZN 166 19399725 -2
GOOGL 147 11115409 1
GOOG 133 13597514 -8
BRK-B 91 20086059 4
Average 134.25 16049677 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 134.25 hedge funds with bullish positions and the average amount invested in these stocks was $16050 million. That figure was $55104 million in AAPL’s case. Amazon.com, Inc. (NASDAQ:AMZN) 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 91 bullish hedge fund positions. Apple Inc. (NASDAQ:AAPL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Hedge funds were also right about betting on AAPL, though not to the same extent, as the stock returned 4.6% during Q2 and outperformed the market as well. Apple shares had much bigger gains in Q1 returning 26.5% year-to-date.

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

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