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Were Hedge Funds Right About Activision Blizzard, Inc. (ATVI)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Activision Blizzard, Inc. (NASDAQ:ATVI).

Is Activision Blizzard, Inc. (NASDAQ:ATVI) a good investment today? Money managers are becoming hopeful. The number of bullish hedge fund positions advanced by 3 lately. Our calculations also showed that ATVI 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). ATVI was in 76 hedge funds’ portfolios at the end of December. There were 73 hedge funds in our database with ATVI holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. 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

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. With all of this in mind let’s take a peek at the new hedge fund action surrounding Activision Blizzard, Inc. (NASDAQ:ATVI).

How have hedgies been trading Activision Blizzard, Inc. (NASDAQ:ATVI)?

Heading into the first quarter of 2020, a total of 76 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 59 hedge funds with a bullish position in ATVI a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Coatue Management held the most valuable stake in Activision Blizzard, Inc. (NASDAQ:ATVI), which was worth $320.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $282.5 million worth of shares. Jericho Capital Asset Management, Viking Global, and Alkeon Capital Management 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 Hidden Lake Asset Management allocated the biggest weight to Activision Blizzard, Inc. (NASDAQ:ATVI), around 29.34% of its 13F portfolio. Jericho Capital Asset Management is also relatively very bullish on the stock, setting aside 15.25 percent of its 13F equity portfolio to ATVI.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Jericho Capital Asset Management, managed by Josh Resnick, assembled the biggest position in Activision Blizzard, Inc. (NASDAQ:ATVI). Jericho Capital Asset Management had $281.5 million invested in the company at the end of the quarter. Michael Rockefeller and Karl Kroeker’s Woodline Partners also initiated a $67.3 million position during the quarter. The other funds with new positions in the stock are Glen Kacher’s Light Street Capital, George Soros’s Soros Fund Management, and Gavin Baker’s Atreides Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Activision Blizzard, Inc. (NASDAQ:ATVI) but similarly valued. We will take a look at Banco Santander (Brasil) SA (NYSE:BSBR), Moody’s Corporation (NYSE:MCO), American International Group Inc (NYSE:AIG), and Exelon Corporation (NASDAQ:EXC). All of these stocks’ market caps resemble ATVI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BSBR 8 91437 -7
MCO 49 9218123 -6
AIG 52 2870459 -1
EXC 36 1822287 -2
Average 36.25 3500577 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $3501 million. That figure was $2811 million in ATVI’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Activision Blizzard, Inc. (NASDAQ:ATVI) 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on ATVI as the stock returned 12.7% so far in 2020 (through April 20th) 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.
5 Most Popular Stocks Among Hedge Funds
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.

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