We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of The Trade Desk, Inc. (NASDAQ:TTD) based on that data.
Is The Trade Desk, Inc. (NASDAQ:TTD) a buy, sell, or hold? Money managers are reducing their bets on the stock. The number of long hedge fund positions shrunk by 2 recently. Our calculations also showed that TTD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). TTD was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 26 hedge funds in our database with TTD holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 41 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the latest hedge fund action surrounding The Trade Desk, Inc. (NASDAQ:TTD).
What have hedge funds been doing with The Trade Desk, Inc. (NASDAQ:TTD)?
Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in TTD a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Alkeon Capital Management held the most valuable stake in The Trade Desk, Inc. (NASDAQ:TTD), which was worth $259.8 million at the end of the third quarter. On the second spot was Zevenbergen Capital Investments which amassed $141.3 million worth of shares. Citadel Investment Group, D E Shaw, 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 Ogborne Capital allocated the biggest weight to The Trade Desk, Inc. (NASDAQ:TTD), around 8.8% of its 13F portfolio. Zevenbergen Capital Investments is also relatively very bullish on the stock, setting aside 5.24 percent of its 13F equity portfolio to TTD.
Due to the fact that The Trade Desk, Inc. (NASDAQ:TTD) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers that slashed their entire stakes last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest investment of the 750 funds followed by Insider Monkey, comprising an estimated $49.3 million in stock. Alex Sacerdote’s fund, Whale Rock Capital Management, also cut its stock, about $36.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Trade Desk, Inc. (NASDAQ:TTD) but similarly valued. These stocks are Lincoln National Corporation (NYSE:LNC), Godaddy Inc (NYSE:GDDY), Tyler Technologies, Inc. (NYSE:TYL), and EPAM Systems Inc (NYSE:EPAM). This group of stocks’ market caps match TTD’s market cap.
|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 35 hedge funds with bullish positions and the average amount invested in these stocks was $1173 million. That figure was $369 million in TTD’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand Tyler Technologies, Inc. (NYSE:TYL) is the least popular one with only 21 bullish hedge fund positions. The Trade Desk, Inc. (NASDAQ:TTD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately TTD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TTD investors were disappointed as the stock returned -38.2% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.