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How Facebook 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 #1 most popular stock among the 743 hedge funds tracked by Insider Monkey was Facebook Inc (NASDAQ:FB).  Facebook was the third 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 about 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.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital

Let’s take a look at the fresh hedge fund action regarding Facebook Inc (NASDAQ:FB).

What does smart money think about Facebook Inc (NASDAQ:FB)?

Heading into the second quarter of 2019, a total of 176 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 180 hedge funds with a bullish position in FB a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FB_may2019

More specifically, Tiger Global Management was the largest shareholder of Facebook Inc (NASDAQ:FB), with a stake worth $1473.2 million reported as of the end of March. Trailing Tiger Global Management was Citadel Investment Group, which amassed a stake valued at $1176.8 million. AQR Capital Management, Citadel Investment Group, and Lone Pine Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Now, specific money managers have been driving this bullishness. D1 Capital Partners, managed by Daniel Sundheim, created the most outsized position in Facebook Inc (NASDAQ:FB). D1 Capital Partners had $332.5 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin’s Senator Investment Group also made a $159.2 million investment in the stock during the quarter. The following funds were also among the new FB investors: David Goel and Paul Ferri’s Matrix Capital Management, Robert Pitts’s Steadfast Capital Management, and Edmond M. Safra’s EMS Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Facebook Inc (NASDAQ:FB) but similarly valued. These stocks are Alibaba Group Holding Limited (NYSE:BABA), Johnson & Johnson (NYSE:JNJ), Visa Inc (NYSE:V), and Exxon Mobil Corporation (NYSE:XOM). This group of stocks’ market caps resemble FB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BABA 117 13936754 4
JNJ 69 5801877 -4
V 124 13224012 -4
XOM 49 1310955 -4
Average 89.75 8568400 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 89.75 hedge funds with bullish positions and the average amount invested in these stocks was $8568 million. That figure was $18350 million in FB’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 49 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 and outperformed the S&P 500 ETF (SPY) by more than percentage points. Hedge funds were also right about betting on FB as the stock returned 15.8% during the same period and outperformed the market by an even larger margin. Facebook shares also gained 47.2% this year. 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.

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