How Have Hedge Funds Been Trading Tesla Inc. (TSLA) Recently?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Tesla Inc. (NASDAQ:TSLA)? The smart money sentiment can provide an answer to this question.

Is Tesla Inc. (NASDAQ:TSLA) a healthy stock for your portfolio? Investors who are in the know were taking an optimistic view. The number of long hedge fund positions moved up by 2 in recent months. Tesla Inc. (NASDAQ:TSLA) was in 63 hedge funds’ portfolios at the end of the second quarter of 2020. Prior to this, the all time high for this statistics was 61. This means the bullish number of hedge fund positions in Tesla reached another all time high (third in a row). Our calculations also showed that TSLA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to view the fresh hedge fund action encompassing Tesla Inc. (NASDAQ:TSLA).

Hedge fund activity in Tesla Inc. (NASDAQ:TSLA)

Heading into the third quarter of 2020, a total of 63 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TSLA over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Tesla Inc. (NASDAQ:TSLA) was held by Citadel Investment Group, which reported holding $8069.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $1195.2 million position. Other investors bullish on the company included Whale Rock Capital Management, LMR Partners, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Tao Capital allocated the biggest weight to Tesla Inc. (NASDAQ:TSLA), around 30.73% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, dishing out 16.01 percent of its 13F equity portfolio to TSLA.

Now, key money managers have jumped into Tesla Inc. (NASDAQ:TSLA) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the most valuable position in Tesla Inc. (NASDAQ:TSLA). LMR Partners had $643.2 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also made a $263.2 million investment in the stock during the quarter. The other funds with brand new TSLA positions are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Israel Englander’s Millennium Management, and Ken Griffin’s Citadel Investment Group.

Let’s go over hedge fund activity in other stocks similar to Tesla Inc. (NASDAQ:TSLA). These stocks are Netflix, Inc. (NASDAQ:NFLX), Novartis AG (NYSE:NVS), Cisco Systems, Inc. (NASDAQ:CSCO), Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), and PepsiCo, Inc. (NASDAQ:PEP). This group of stocks’ market values are closest to TSLA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NFLX 113 13487546 4
NVS 21 1942870 -9
CSCO 59 2904558 1
MRK 76 4854278 -2
KO 59 20093024 4
XOM 53 1114752 -12
PEP 53 3156792 -4
Average 62 6793403 -2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 62 hedge funds with bullish positions and the average amount invested in these stocks was $6793 million. That figure was $5561 million in TSLA’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 21 bullish hedge fund positions. Tesla Inc. (NASDAQ:TSLA) is not the most popular stock in this group but hedge fund interest is still above average and improving. 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 gained 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on TSLA in increasing numbers as the stock returned 103.6% since the end of Q2 (through 10/16) and outperformed the market by an even bigger margin.

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