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Were Hedge Funds Right About Piling Into Apple Inc. (AAPL)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. 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 we look at how hedge funds traded Apple Inc. (NASDAQ:AAPL) and determine whether the smart money was really smart about this stock.

Apple Inc. (NASDAQ:AAPL) has experienced an increase in enthusiasm from smart money of late. AAPL was in 123 hedge funds’ portfolios at the end of the first quarter of 2020. There were 119 hedge funds in our database with AAPL holdings at the end of the previous quarter. Our calculations also showed that AAPL ranks 10th 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.

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 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 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 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.

Scott Bessent of Key Square Capital Management

Scott Bessent of Key Square Capital Management

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. With all of this in mind we’re going to check out the new hedge fund action encompassing Apple Inc. (NASDAQ:AAPL).

How are hedge funds trading Apple Inc. (NASDAQ:AAPL)?

Heading into the second quarter of 2020, a total of 123 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AAPL over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

More specifically, Berkshire Hathaway was the largest shareholder of Apple Inc. (NASDAQ:AAPL), with a stake worth $62340.6 million reported as of the end of September. Trailing Berkshire Hathaway was Citadel Investment Group, which amassed a stake valued at $3594.2 million. Fisher Asset Management, AQR Capital Management, and D E Shaw 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 Berkshire Hathaway allocated the biggest weight to Apple Inc. (NASDAQ:AAPL), around 35.52% of its 13F portfolio. Crake Asset Management is also relatively very bullish on the stock, dishing out 12.79 percent of its 13F equity portfolio to AAPL.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, created the most outsized position in Apple Inc. (NASDAQ:AAPL). Alkeon Capital Management had $334.6 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $156.2 million investment in the stock during the quarter. The following funds were also among the new AAPL investors: Michael Larson’s Bill & Melinda Gates Foundation Trust, Alex Sacerdote’s Whale Rock Capital Management, and Scott Bessent’s Key Square Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Apple Inc. (NASDAQ:AAPL) but similarly valued. These stocks are Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Alphabet Inc (NASDAQ:GOOG), and Alibaba Group Holding Limited (NYSE:BABA). This group of stocks’ market valuations resemble AAPL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMZN 251 32864433 49
GOOGL 167 11083440 4
GOOG 147 15254756 -1
BABA 167 19433098 -3
Average 183 19658932 12.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 183 hedge funds with bullish positions and the average amount invested in these stocks was $19659 million. That figure was $74756 million in AAPL’s case. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Alphabet Inc (NASDAQ:GOOG) is the least popular one with only 147 bullish hedge fund positions. Compared to these stocks Apple Inc. (NASDAQ:AAPL) is even less popular than GOOG. Hedge funds clearly dropped the ball on AAPL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Hedge funds were also right about betting on AAPL as the stock returned 43.9% so far in the second quarter and outperformed the market by an even larger margin.

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