Is Alphabet Inc (GOOG) Going to Burn These Hedge Funds?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Alphabet Inc (NASDAQ:GOOG) based on that data.

Is Alphabet Inc (NASDAQ:GOOG) a buy right now? Hedge funds are becoming less confident. The number of long hedge fund bets went down by 1 in recent months. Our calculations also showed that GOOG 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). GOOG was in 147 hedge funds’ portfolios at the end of March. There were 148 hedge funds in our database with GOOG positions at the end of the previous quarter. During the March market crash hedge funds were flocking into other large cap stocks like Amazon, Microsoft, and Facebook, however we didn’t observe the same enthusiasm towards Alphabet Inc.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Blood

David Blood of Generation Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the recent hedge fund action regarding Alphabet Inc (NASDAQ:GOOG).

Hedge fund activity in Alphabet Inc (NASDAQ:GOOG)

At Q1’s end, a total of 147 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -1% from the fourth quarter of 2019. On the other hand, there were a total of 133 hedge funds with a bullish position in GOOG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Alphabet Inc (NASDAQ:GOOG) was held by Eagle Capital Management, which reported holding $2032.4 million worth of stock at the end of September. It was followed by Generation Investment Management with a $1162.8 million position. Other investors bullish on the company included Citadel Investment Group, Southport Management, and GQG Partners. In terms of the portfolio weights assigned to each position RIT Capital Partners allocated the biggest weight to Alphabet Inc (NASDAQ:GOOG), around 32.63% of its 13F portfolio. Deccan Value Advisors is also relatively very bullish on the stock, earmarking 21.2 percent of its 13F equity portfolio to GOOG.

Since Alphabet Inc (NASDAQ:GOOG) has faced declining sentiment from the smart money, it’s easy to see that there was a specific group of money managers who were dropping their full holdings by the end of the third quarter. Intriguingly, Shane Finemore’s Manikay Partners dumped the biggest stake of the 750 funds tracked by Insider Monkey, worth an estimated $93.6 million in stock. Daniel Lascano’s fund, Lomas Capital Management, also dumped its stock, about $48.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Alphabet Inc (NASDAQ:GOOG) but similarly valued. We will take a look at Alibaba Group Holding Limited (NYSE:BABA), Facebook Inc (NASDAQ:FB), Berkshire Hathaway Inc. (NYSE:BRK-B), and Visa Inc (NYSE:V). This group of stocks’ market values are closest to GOOG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BABA 167 19433098 -3
FB 213 19600111 15
BRK-B 115 18119296 2
V 157 14390735 14
Average 163 17885810 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 163 hedge funds with bullish positions and the average amount invested in these stocks was $17886 million. That figure was $15255 million in GOOG’s case. Facebook Inc (NASDAQ:FB) 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 115 bullish hedge fund positions. Alphabet Inc (NASDAQ:GOOG) is not the least popular stock in this group but hedge fund interest is still below 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on GOOG as the stock returned 22.9% during the second quarter and outperformed the market by an even larger margin.

Follow Alphabet Inc. (NASDAQ:GOOG)

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