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Were Hedge Funds Right About Souring On Alibaba Group Holding Limited (BABA)?

We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Alibaba Group Holding Limited (NYSE:BABA) heading into this quarter and whether they were right about the stock. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Alibaba Group Holding Limited (NYSE:BABA) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. BABA was in 167 hedge funds’ portfolios at the end of March. There were 170 hedge funds in our database with BABA holdings at the end of the previous quarter. Our calculations also showed that BABA is 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.

According to most shareholders, hedge funds are perceived as slow, outdated investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers choose to focus on the crème de la crème of this group, about 850 funds. These hedge fund managers manage the majority of the hedge fund industry’s total asset base, and by shadowing their highest performing equity investments, Insider Monkey has spotted various investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Chase Coleman of Tiger Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the recent hedge fund action regarding Alibaba Group Holding Limited (NYSE:BABA).

What have hedge funds been doing with Alibaba Group Holding Limited (NYSE:BABA)?

At the end of the first quarter, a total of 167 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from one quarter earlier. On the other hand, there were a total of 117 hedge funds with a bullish position in BABA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Alibaba Group Holding Limited (NYSE:BABA) was held by Fisher Asset Management, which reported holding $2579.7 million worth of stock at the end of September. It was followed by GQG Partners with a $1690.5 million position. Other investors bullish on the company included Lone Pine Capital, Citadel Investment Group, and Tiger Global Management LLC. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 41.93% of its 13F portfolio. Ovata Capital Management is also relatively very bullish on the stock, earmarking 36.57 percent of its 13F equity portfolio to BABA.

Because Alibaba Group Holding Limited (NYSE:BABA) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedgies who sold off their positions entirely in the first quarter. Intriguingly, Eashwar Krishnan’s Tybourne Capital Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $310.6 million in stock. Simon Sadler’s fund, Segantii Capital, also dumped its stock, about $151.8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). These stocks are Facebook Inc (NASDAQ:FB), Berkshire Hathaway Inc. (NYSE:BRK-B), Visa Inc (NYSE:V), and Johnson & Johnson (NYSE:JNJ). This group of stocks’ market values are similar to BABA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FB 213 19600111 15
BRK-B 115 18119296 2
V 157 14390735 14
JNJ 82 5454317 -3
Average 141.75 14391115 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 141.75 hedge funds with bullish positions and the average amount invested in these stocks was $14391 million. That figure was $19433 million in BABA’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Johnson & Johnson (NYSE:JNJ) is the least popular one with only 82 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately BABA wasn’t nearly as successful as these 10 stocks and hedge funds that were betting on BABA were disappointed as the stock returned 14.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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