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Were Hedge Funds Right About Electronic Arts Inc. (EA)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. 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 835 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 December 31st. In this article we look at what those investors think of Electronic Arts Inc. (NASDAQ:EA).

Is Electronic Arts Inc. (NASDAQ:EA) a good investment now? The best stock pickers are in a bearish mood. The number of long hedge fund positions were trimmed by 2 lately. Our calculations also showed that EA 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). EA was in 68 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 70 hedge funds in our database with EA positions 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.

Ricky Sandler of Eminence Capital

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. 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. Keeping this in mind we’re going to take a gander at the recent hedge fund action regarding Electronic Arts Inc. (NASDAQ:EA).

Hedge fund activity in Electronic Arts Inc. (NASDAQ:EA)

At the end of the fourth quarter, a total of 68 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. By comparison, 57 hedge funds held shares or bullish call options in EA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Electronic Arts Inc. (NASDAQ:EA), with a stake worth $352.9 million reported as of the end of September. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $267.5 million. Eminence Capital, SRS Investment Management, and Two Sigma Advisors 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 Anavon Capital allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 14.29% of its 13F portfolio. SoMa Equity Partners is also relatively very bullish on the stock, designating 9.19 percent of its 13F equity portfolio to EA.

Seeing as Electronic Arts Inc. (NASDAQ:EA) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds who were dropping their full holdings in the third quarter. At the top of the heap, Aaron Cowen’s Suvretta Capital Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising close to $82.5 million in call options, and Gil Simon’s SoMa Equity Partners was right behind this move, as the fund dropped about $39.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Electronic Arts Inc. (NASDAQ:EA). These stocks are Hilton Worldwide Holdings Inc (NYSE:HLT), ONEOK, Inc. (NYSE:OKE), Zimmer Biomet Holdings Inc (NYSE:ZBH), and The Hershey Company (NYSE:HSY). All of these stocks’ market caps match EA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HLT 57 4450016 4
OKE 31 223513 5
ZBH 64 1443573 15
HSY 39 901147 3
Average 47.75 1754562 6.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.75 hedge funds with bullish positions and the average amount invested in these stocks was $1755 million. That figure was $2360 million in EA’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Electronic Arts Inc. (NASDAQ:EA) 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 EA as the stock returned 7.3% 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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