Globally hedge funds manage more than $3.5 trillion based on our estimates. They employ dozens of different strategies investing in stocks, bonds, derivatives, currencies, commodities, real estate, and exotic securities like insurance claims or electricity. The most well-known hedge fund managers are equity hedge funds. This is also the most transparent corner of the hedge fund universe.
The Arab oil embargo in 1973-1974 caused the S&P 500 Index lose 14% in 1973, and 26% in 1974. In 1975 US Congress passed the section 13(f) of the Securities Exchange Act to increase investors’ confidence in the US equity markets. Section 13(f) of the Securities Exchange Act requires that institutional money managers who manage at least $100 million must file form 13F and disclose their positions in exchange traded stocks, closed-end funds, ETFs, certain convertible debt instruments, equity options, and warrants. Institutional money managers (hedge funds are part of this group) don’t have to report their cash, fixed income, private, foreign, or over-the-counter equity holdings.
Thanks to the 13F filings, we get to see which stocks world’s biggest and most successful hedge funds are buying and selling once every three months. Insider Monkey tracks more than 1000 dead, dormant, or active equity hedge funds. Through November 15th, 694 of equity these hedge funds revealed their stock holdings at the end of September 2018.
The total value of equity hedge funds’ long positions at the end of September was $2.17 trillion. This means hedge funds collectively owned about 5% of the outstanding shares of all exchange traded US stocks. This is a very important yardstick to keep in mind when evaluating whether hedge funds are really bullish about a stock. For example, Amazon.com is the third most popular stock among hedge funds. More than 1 out of 5 hedge funds have a position in Amazon shares (21.6% to be more specific). However, hedge funds collectively own only 2.2% of Amazon’s outstanding shares. This means hedge funds are really underweight Amazon shares.
The table below summarizes the aggregate statistics about hedge funds 13F holdings, the average return of these holdings compared against the S&P 500 and Russell 2000 Indices’ Returns.
|Year||Quarter||Value of Hedge Fund Holdings||Average Return of Long Positions||S&P 500 ETF’s Return||Russell 2000 ETF’s Return|
The first thing you will notice is that hedge funds’ aggregate 13F portfolio outperforms the S&P 500 Index whenever Russell 2000 Index outperforms the S&P 500 Index. That’s because hedge funds’ aggregate returns are roughly a 60%-40% blend of the S&P 500 and Russell 2000 Indices.
You wouldn’t it know it from the way the media constantly slams hedge funds, but they are in fact talented stock pickers which generate alpha (meaning their risk-adjusted returns beat comparable benchmarks on average).
However, that doesn’t mean that putting your money into hedge funds is the best way to profit from their stock picking expertise, assuming you have enough money for them to even consider you as a client in the first place. That’s because much of the alpha that hedge funds generate (about 80% according to research published by the Financial Times in 2016) is destroyed by their high fee structure.
Insider Monkey has uncovered a far better way to capitalize off of hedge funds’ stock picks by investing in only the top consensus picks of the 100 best performing hedge funds each quarter. Insider Monkey’s flagship “Best Performing Hedge Funds Strategy” has returned 96.9% since its 2014 inception (through November 2), beating S&P 500 ETF (SPY) by over 40 percentage points. Check out a detailed analysis of Insider Monkey’s performance and past quarterly stock picks for all the details.
In this report we are going to concentrate on the 25 most popular stocks among hedge funds, 25 most popular stocks among billionaires, 20 stocks with the biggest decline in hedge fund ownership, and 20 most concentrated hedge fund positions.
The 25 Most Popular Stocks Among Hedge Funds
|Rank||Company||Ticker||Number of Hedge Funds||%Owned by HFs|
|6||Alibaba Group Holding Limited||BABA||127||3.6|
|9||Bank of America Corporation||BAC||102||10.9|
|10||J P Morgan Chase & Co||JPM||99||3|
|12||PayPal Holdings Inc.||PYPL||97||4.7|
|17||Berkshire Hathaway Inc.||BRK-B||84||4.6|
|19||T-Mobile US Inc.||TMUS||80||7.3|
|20||Wells Fargo & Company||WFC||79||11.8|
|22||Adobe Systems Incorporated||ADBE||79||6|
|23||Electronic Arts Inc.||EA||79||12.2|
|24||NXP Semiconductors N.V.||NXPI||78||24.6|
|25||Activision Blizzard Inc||ATVI||74||9.1|
Billionaire’s Top Holdings, Biggest Q3 Moves
Among the hedge funds tracked by Insider Monkey are about 60 which are managed or were founded by billionaires. These gifted investors have built immense personal wealth for themselves over the years thanks to their long and storied histories of delivering market-beating returns for their investors.
We pay special attention to this group of legendary investors, which includes the likes of Warren Buffett, Carl Icahn, George Soros, and Ray Dalio, publishing quarterly articles that share only their consensus top picks across various industries. Below, we’ve gathered a collection of 10 of our favorite billionaire investors, sharing their top stock picks and biggest Q3 moves. We also provided the list of 25 most popular stocks among billionaires in this section.
This year Insider Monkey’s Billionaire Stock Index delivered a cumulative gain of 1.4% through November 21st, vs. 0.6% return for the S&P 500 ETF (SPY).
The 25 Most Popular Stocks Among Billionaires
|Rank||Company||Ticker||Number of Billionaires||No. of Billionaires in Q2|
|2||Alibaba Group Holding Limited||BABA||24||18|
|9||Adobe Systems Incorporated||ADBE||18||17|
|12||J P Morgan Chase & Co||JPM||16||14|
|13||Twenty-First Century Fox Inc.||FOXA||16||13|
|17||DISH Network Corporation||DISH||16||11|
|18||PayPal Holdings Inc.||PYPL||15||15|
|20||Bank of America Corporation||BAC||14||16|
|22||NXP Semiconductors N.V.||NXPI||14||19|
|23||Marathon Petroleum Corporation||MPC||14||13|
|24||Walt Disney Company (The)||DIS||14||11|
The 20 Stocks With The Biggest Decline in Hedge Fund Ownership
The table below displays the stocks that experienced the biggest decline in the number of hedge funds with bullish positions during the third quarter. These stocks underperformed the market since the end of the third quarter as well. The 10 stocks at the top of our rankings lost a whopping 19.3% through November 21st, vs. a decline of 8.9% for the S&P 500 ETF (SPY). So, it is very likely that negative expectations about these stocks are triggering hedge fund sales, and hedge fund sales are fueling the downward trend in these stocks.
|Rank||Company||Ticker||No of HFs (Q3)||No of HFs (Q2)||Decline in No of HFs|
|3||NXP Semiconductors N.V.||NXPI||78||93||15|
|5||Deere & Company||DE||37||51||14|
|6||Zillow Group Inc.||Z||22||36||14|
|8||Ctrip.com International Ltd.||CTRP||19||31||12|
|9||Axon Enterprise Inc.||AAXN||16||28||12|
|10||Pinnacle Foods Inc.||PF||35||46||11|
|12||Hilton Worldwide Holdings Inc.||HLT||45||55||10|
|13||Western Digital Corporation||WDC||33||43||10|
|14||Regions Financial Corporation||RF||31||41||10|
|15||TD Ameritrade Holding Corporation||AMTD||18||28||10|
|16||Service Corporation International||SCI||15||25||10|
|18||PagSeguro Digital Ltd.||PAGS||39||48||9|
|19||Forest City Realty Trust Inc.||FCE-A||34||43||9|
|20||Lam Research Corporation||LRCX||34||43||9|
The 20 Most Concentrated Hedge Fund Positions
Concentrated hedge fund positions are double edged swords. If hedge funds are dealing with a hostile management that is blind to the interests of shareholders, concentrated hedge fund holdings will force the management’s hand to make changes that will benefit the stock price. On the other hand, if management is already doing what should be done and in the event of an unforeseen market-wide decline these stocks might decline more because several of these hedge funds may try to sell large portions of their holdings all at the same time.
The 20 most concentrated hedge fund positions we listed below lost 13% so far in Q4 (through November 21) vs. a loss of 8.9% for the S&P 500 ETF (SPY) and a loss of 12.2% for the Russell 2000 ETF (IWM). The 10 stocks at the top of this list where hedge funds own 40% or more lost 14.5% during the same period.
The list of stocks below has at least 30 separate hedge funds collectively owning more than 30% of the outstanding shares of each company.
|Rank||Company||Ticker||No of HFs (out of 694)||Total Value (x1000)||Concentration|
|1||Caesars Entertainment Corporation||CZR||62||4321459||63.0%|
|3||Peabody Energy Corporation||BTU||34||2098132||48.3%|
|4||Nexeo Solutions Inc.||NXEO||30||531459||48.3%|
|5||Altra Industrial Motion Corp.||AIMC||35||568492||47.0%|
|6||VICI Properties Inc.||VICI||39||3561661||44.5%|
|7||Herbalife Nutrition Ltd.||HLF||38||3764011||43.9%|
|8||Clovis Oncology Inc.||CLVS||32||673672||43.5%|
|9||Tempur Sealy International Inc.||TPX||30||1182122||41.0%|
|11||Tribune Media Company||TRCO||39||1292684||38.4%|
|13||Warrior Met Coal Inc.||HCC||35||495642||34.7%|
|14||W.R. Grace & Co.||GRA||37||1635397||34.1%|
|15||Axalta Coating Systems Ltd.||AXTA||43||2358252||33.6%|
|17||Cheniere Energy Inc.||LNG||42||5973125||33.4%|
|18||Amicus Therapeutics Inc.||FOLD||30||761559||33.4%|
|19||Dell Technologies Inc.||DVMT||61||6285474||32.5%|
|20||Heron Therapeutics Inc.||HRTX||31||785278||31.9%|