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How Microsoft Corporation 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 second most popular stock among the 743 hedge funds tracked by Insider Monkey was Microsoft Corporation (NASDAQ:MSFT). Microsoft was the 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.

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Bill Gates

We’re going to analyze the recent hedge fund action encompassing Microsoft Corporation (NASDAQ:MSFT).

What have hedge funds been doing with Microsoft Corporation (NASDAQ:MSFT)?

At Q1’s end, a total of 170 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MSFT over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MSFT_may2019

Among these funds, Eagle Capital Management held the most valuable stake in Microsoft Corporation (NASDAQ:MSFT), which was worth $2224.8 million at the end of the first quarter. On the second spot was AQR Capital Management which amassed $2105.9 million worth of shares. Moreover, Fisher Asset Management, Tiger Global Management, and Egerton Capital Limited were also bullish on Microsoft Corporation (NASDAQ:MSFT), allocating a large percentage of their portfolios to this stock.

Since Microsoft Corporation (NASDAQ:MSFT) has experienced bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes last quarter. At the top of the heap, Ricky Sandler’s Eminence Capital said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $168.6 million in stock. Billionaire Richard Chilton’s fund, Chilton Investment Company, also sold off its stock, about $134.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Microsoft Corporation (NASDAQ:MSFT) but similarly valued. We will take a look at Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), and Alphabet Inc (NASDAQ:GOOG). This group of stocks’ market values are similar to MSFT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAPL 98 55103895 -18
AMZN 166 19399725 -2
GOOGL 147 11115409 1
GOOG 133 13597514 -8
Average 136 24804136 -6.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 136 hedge funds with bullish positions and the average amount invested in these stocks was $24804 million. That figure was $24799 million in MSFT’s case. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Apple Inc. (NASDAQ:AAPL) is the least popular one with only 98 bullish hedge fund positions. Compared to these stocks Microsoft Corporation (NASDAQ:MSFT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 through June 28th and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Hedge funds were also right about betting on MSFT as the stock returned 14% during Q2 and outperformed the market by an even larger margin. Microsoft shares also gained 32.9% during the first half of 2019 and significantly outperformed the market. 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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