While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, the low commodity prices and the economic turmoil in China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. Historically hedge funds’ consensus large-cap stock picks generated an annual alpha of about 2 percentage points. I wouldn’t be happy with their “net returns” after paying a 2% management fee and 20% incentive fees if I were a hedge fund client. However, this doesn’t change the fact that their picks are slightly better than passively investing in index funds.
You probably think that hedge funds’ long picks aren’t beating the market because of their high profile losses in Valeant (VRX) or energy stocks. You’d be wrong. We track more than 800 equity hedge funds and create a giant portfolio of their long holdings. This $1.6 trillion portfolio of large and small-cap stocks lost 4.7% through the end of February, and outperformed S&P 500 Total Return Index’s 5.2% loss. Small-cap index Russell 2000 lost 8.8% during the same period. In this article, we are going to take a look at the hedge fund sentiment surrounding Facebook Inc (NASDAQ:FB).
Facebook Inc (NASDAQ:FB) has experienced an increase in hedge fund sentiment in recent months. FB was in 146 hedge funds’ portfolios at the end of December. There were 128 hedge funds in our database with FB positions at the end of the previous quarter. Overall, Facebook is the third most popular stock among hedge funds and investors were rewarded with a 2.2% gain in the stock during the first 2 months of this year. Why do hedge funds like Facebook? Here is an excerpt from Silver Arrow Partners’ 2015 Q2 investor letter explaining their Facebook investment thesis:
“Facebook stands out among the large capitalization Internet companies as the one with the most growth catalysts for any company in the sector. First, the roll-out of video and video advertising is a major source of advertising revenue growth. In 2015, Facebook is already on track to host two-thirds of the video volume of YouTube, the industry leader, after having just entered the video market recently. Second, the Company is at the early stage of monetizing its Instagram application, which is larger and more popular than Twitter. Third, monthly active users at WhatsApp have dramatically grown to 900 million, well above the 400 million mark when it was acquired by Facebook. Like Instagram, Facebook is just beginning to monetize the WhatsApp asset. Finally, in 2016, the company will commercially release its Occulus VR product, which consists of virtual reality goggles and associated hardware/software, and which we believe will be a meaningful revenue contributor.”