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Looks Like Trump Scared Alibaba Group Holding Limited (BABA) Investors

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Alibaba Group Holding Limited (NYSE:BABA) and determine whether the smart money was really smart about this stock.

Alibaba Group Holding Limited (NYSE:BABA) has seen a noticeable decrease in enthusiasm from smart money during the second quarter. Trump administration revealed its intentions to delist Chinese stocks that trade in U.S. exchanges during the second quarter. As a result BABA dropped one spot to #5 in our list of the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a glance at the key hedge fund action surrounding Alibaba Group Holding Limited (NYSE:BABA).

Hedge fund activity in Alibaba Group Holding Limited (NYSE:BABA)

At the end of June, a total of 154 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 127 hedge funds with a bullish position in BABA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Alibaba Group Holding Limited (NYSE:BABA). Fisher Asset Management has a $2.9227 billion position in the stock, comprising 2.9% of its 13F portfolio. The second most bullish fund manager is GQG Partners, managed by Rajiv Jain, which holds a $2.2457 billion position; 10.1% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism include Ken Griffin’s Citadel Investment Group, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 50.78% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, dishing out 47.43 percent of its 13F equity portfolio to BABA.

Judging by the fact that Alibaba Group Holding Limited (NYSE:BABA) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds that slashed their positions entirely heading into Q3. Interestingly, Lone Pine Capital dumped the biggest stake of the 750 funds watched by Insider Monkey, valued at an estimated $1232.3 million in stock, and Jim Davidson, Dave Roux and Glenn Hutchins’s Silver Lake Partners was right behind this move, as the fund cut about $697.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 13 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). These stocks are Facebook Inc (NASDAQ:FB), Berkshire Hathaway Inc. (NYSE:BRK-B), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), JPMorgan Chase & Co. (NYSE:JPM), and The Procter & Gamble Company (NYSE:PG). All of these stocks’ market caps are closest to BABA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FB 210 25222524 -3
BRK-B 107 15633556 -8
V 154 17010420 -3
JNJ 94 4731250 12
WMT 60 5829223 5
JPM 123 8732467 11
PG 73 9244143 -4
Average 117.3 12343369 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 117.3 hedge funds with bullish positions and the average amount invested in these stocks was $12.3 billion. That figure was $24.4 billion in BABA’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 60 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BABA is 84.5. 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 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 28.2% in 2020 through August 24th but still beat the market by 20.6 percentage points. Hedge funds were also right about betting on BABA as the stock returned 28% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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