Is Take-Two Interactive Software, Inc. (TTWO) Going To Burn These Hedge Funds ?

Is Take-Two Interactive Software, Inc. (NASDAQ:TTWO) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Take-Two Interactive Software, Inc. (NASDAQ:TTWO) a safe investment now? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions went down by 3 in recent months. Our calculations also showed that TTWO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ricky Sandler of Eminence Capital

Ricky Sandler of Eminence Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the latest hedge fund action encompassing Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

What have hedge funds been doing with Take-Two Interactive Software, Inc. (NASDAQ:TTWO)?

Heading into the fourth quarter of 2019, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. By comparison, 58 hedge funds held shares or bullish call options in TTWO a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with TTWO Positions

Among these funds, Melvin Capital Management held the most valuable stake in Take-Two Interactive Software, Inc. (NASDAQ:TTWO), which was worth $313.7 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $175.5 million worth of shares. Southpoint Capital Advisors, Palestra Capital Management, and Citadel Investment Group 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 BlueDrive Global Investors allocated the biggest weight to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), around 12.42% of its portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, dishing out 11.5 percent of its 13F equity portfolio to TTWO.

Since Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has faced a decline in interest from hedge fund managers, we can see that there is a sect of hedgies that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that Jacob Doft’s Highline Capital Management sold off the largest stake of all the hedgies followed by Insider Monkey, comprising about $64.4 million in stock, and James Parsons’s Junto Capital Management was right behind this move, as the fund dumped about $49.1 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Take-Two Interactive Software, Inc. (NASDAQ:TTWO) but similarly valued. We will take a look at Live Nation Entertainment, Inc. (NYSE:LYV), Campbell Soup Company (NYSE:CPB), Nomura Holdings, Inc. (NYSE:NMR), and Korea Electric Power Corporation (NYSE:KEP). All of these stocks’ market caps are similar to TTWO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LYV 40 1097828 1
CPB 31 972740 5
NMR 5 24828 -2
KEP 6 43753 -1
Average 20.5 534787 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $1597 million in TTWO’s case. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TTWO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TTWO were disappointed as the stock returned -3.2% during the first two months of the fourth quarter and underperformed the market. 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 70 percent of these stocks already outperformed the market in Q4.

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