In this article we are going to use hedge fund sentiment as a tool and determine whether Amazon.com, Inc. (NASDAQ:AMZN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Amazon.com, Inc. (NASDAQ:AMZN) an outstanding investment today? The best stock pickers were taking some chips off the table during the third quarter as the number of bullish hedge fund positions went down by 3. Amazon.com, Inc. (NASDAQ:AMZN) was in 245 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 251. Nevertheless, our calculations also showed that AMZN is still the #1 stock among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. 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. With all of this in mind let’s take a peek at the key hedge fund action regarding Amazon.com, Inc. (NASDAQ:AMZN).
How have hedgies been trading Amazon.com, Inc. (NASDAQ:AMZN)?
At Q3’s end, a total of 245 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -1% from the previous quarter. By comparison, 181 hedge funds held shares or bullish call options in AMZN 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.
Among these funds, Citadel Investment Group held the most valuable stake in Amazon.com, Inc. (NASDAQ:AMZN), which was worth $18935.2 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $5332.9 million worth of shares. Arrowstreet Capital, D E Shaw, and Eagle Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to Amazon.com, Inc. (NASDAQ:AMZN), around 33.47% of its 13F portfolio. Manor Road Capital Partners is also relatively very bullish on the stock, setting aside 19.17 percent of its 13F equity portfolio to AMZN.
Judging by the fact that Amazon.com, Inc. (NASDAQ:AMZN) has faced a decline in interest from hedge fund managers, we can see that there were a few hedge funds who sold off their entire stakes heading into Q4. It’s worth mentioning that Daniel Sundheim’s D1 Capital Partners said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $412.2 million in stock. Mark Kingdon’s fund, Kingdon Capital, also cut its stock, about $37.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Amazon.com, Inc. (NASDAQ:AMZN). We will take a look at Alphabet Inc (NASDAQ:GOOG), Alphabet Inc (NASDAQ:GOOGL), Alibaba Group Holding Limited (NYSE:BABA), Facebook Inc (NASDAQ:FB), Visa Inc (NYSE:V), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and Berkshire Hathaway Inc. (NYSE:BRK-B). This group of stocks’ market values are closer to AMZN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 149.1 hedge funds with bullish positions and the average amount invested in these stocks was $19191 million. That figure was $43.8 billion in AMZN’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 67 bullish hedge fund positions. Compared to these stocks Amazon.com, Inc. (NASDAQ:AMZN) is more popular among hedge funds. Our overall hedge fund sentiment score for AMZN is 99.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. Unfortunately AMZN couldn’t continue its strong 2020 performance in the fourth quarter and hedge funds that were betting on AMZN were disappointed as the stock lost 1.6% since the end of the third quarter. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.