Was The Smart Money Right About Visa Inc (V)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 850 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Visa Inc (NYSE:V) in this article.

Visa Inc (NYSE:V) has experienced a decrease in activity from the world’s largest hedge funds recently. Visa Inc (NYSE:V) was in 154 hedge funds’ portfolios at the end of June. The all time high for this statistics is 157 (2020 Q1). Our calculations also showed that V ranks #6 among 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.

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 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 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to check out the recent hedge fund action surrounding Visa Inc (NYSE:V).

What have hedge funds been doing with Visa Inc (NYSE:V)?

At second quarter’s end, a total of 154 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from one quarter earlier. By comparison, 117 hedge funds held shares or bullish call options in V a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Visa Inc (NYSE:V) was held by Fisher Asset Management, which reported holding $4052.6 million worth of stock at the end of September. It was followed by Berkshire Hathaway with a $1929.3 million position. Other investors bullish on the company included Akre Capital Management, GQG Partners, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Truvvo Partners allocated the biggest weight to Visa Inc (NYSE:V), around 30.17% of its 13F portfolio. Hengistbury Investment Partners is also relatively very bullish on the stock, designating 30.16 percent of its 13F equity portfolio to V.

Seeing as Visa Inc (NYSE:V) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds that decided to sell off their full holdings in the second quarter. At the top of the heap, Renaissance Technologies said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $129.3 million in stock. Glen Kacher’s fund, Light Street Capital, also dropped its stock, about $29.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Visa Inc (NYSE:V) but similarly valued. These stocks are Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), Mastercard Incorporated (NYSE:MA), The Procter & Gamble Company (NYSE:PG), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), JPMorgan Chase & Co. (NYSE:JPM), and UnitedHealth Group Inc. (NYSE:UNH). This group of stocks’ market valuations match V’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 93 hedge funds with bullish positions and the average amount invested in these stocks was $8061 million. That figure was $17010 million in V’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 58 bullish hedge fund positions. Compared to these stocks Visa Inc (NYSE:V) is more popular among hedge funds. Our overall hedge fund sentiment score for V is 96.9 (out of 100). 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately V wasn’t nearly as successful as the other 9 stocks and hedge funds that were betting on V were disappointed as the stock returned 3.8% since the end of the second quarter (through 10/16) and underperformed the market. We should note that hedge funds like Visa because it consistently delivered market beating returns over the long-term and they won’t be discouraged by its short-term performance.

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