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Snap Inc. (SNAP): Are Hedge Funds Right About This Stock?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtSnap Inc. (NYSE:SNAP) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Snap Inc. (NYSE:SNAP) was in 48 hedge funds’ portfolios at the end of March. SNAP has seen a decrease in hedge fund sentiment lately. There were 66 hedge funds in our database with SNAP holdings at the end of the previous quarter. Our calculations also showed that SNAP isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ryan Frick Dorsal Capital

Ryan Frick of Dorsal Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the fresh hedge fund action regarding Snap Inc. (NYSE:SNAP).

What does smart money think about Snap Inc. (NYSE:SNAP)?

At Q1’s end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SNAP over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Is SNAP A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Snap Inc. (NYSE:SNAP). Citadel Investment Group has a $143.5 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Slate Path Capital, led by David Greenspan, holding a $114 million position; the fund has 8.7% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish comprise Robert Pohly’s Samlyn Capital, Ryan Frick and Oliver Evans’s Dorsal Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Slate Path Capital allocated the biggest weight to Snap Inc. (NYSE:SNAP), around 8.74% of its 13F portfolio. Dorsal Capital Management is also relatively very bullish on the stock, earmarking 6.52 percent of its 13F equity portfolio to SNAP.

Since Snap Inc. (NYSE:SNAP) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their positions entirely in the first quarter. Interestingly, James Crichton’s Hitchwood Capital Management cut the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $56 million in stock. Alex Sacerdote’s fund, Whale Rock Capital Management, also cut its stock, about $52.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 18 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Snap Inc. (NYSE:SNAP) but similarly valued. These stocks are Tencent Music Entertainment Group (NYSE:TME), Simon Property Group, Inc (NYSE:SPG), CMS Energy Corporation (NYSE:CMS), and Parker-Hannifin Corporation (NYSE:PH). This group of stocks’ market values match SNAP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TME 25 455610 -1
SPG 29 419445 3
CMS 28 421101 -2
PH 32 889095 -7
Average 28.5 546313 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $546 million. That figure was $930 million in SNAP’s case. Parker-Hannifin Corporation (NYSE:PH) is the most popular stock in this table. On the other hand Tencent Music Entertainment Group (NYSE:TME) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Snap Inc. (NYSE:SNAP) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SNAP as the stock returned 97.6% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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