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

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 Electronic Arts Inc. (NASDAQ:EA) and determine whether the smart money was really smart about this stock.

Is Electronic Arts Inc. (NASDAQ:EA) the right investment to pursue these days? The smart money was betting on the stock at the end of Q1. The number of long hedge fund positions improved by 5. Our calculations also showed that EA 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ricky Sandler of Eminence 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. With all of this in mind we’re going to check out the new hedge fund action surrounding Electronic Arts Inc. (NASDAQ:EA).

What have hedge funds been doing with Electronic Arts Inc. (NASDAQ:EA)?

Heading into the second quarter of 2020, a total of 73 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. By comparison, 61 hedge funds held shares or bullish call options in EA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EA A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in Electronic Arts Inc. (NASDAQ:EA), which was worth $301.1 million at the end of the third quarter. On the second spot was D E Shaw which amassed $204.1 million worth of shares. Renaissance Technologies, SoMa Equity Partners, and SRS Investment 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 SoMa Equity Partners allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 9% of its 13F portfolio. KCL Capital is also relatively very bullish on the stock, dishing out 4.96 percent of its 13F equity portfolio to EA.

As one would reasonably expect, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Electronic Arts Inc. (NASDAQ:EA). Arrowstreet Capital had $95.2 million invested in the company at the end of the quarter. John Smith Clark’s Southpoint Capital Advisors also initiated a $25 million position during the quarter. The other funds with brand new EA positions are Steve Cohen’s Point72 Asset Management, Brad Stephens’s Six Columns Capital, and Eli Cohen’s Crescent Park Management.

Let’s go over hedge fund activity in other stocks similar to Electronic Arts Inc. (NASDAQ:EA). We will take a look at Metlife Inc (NYSE:MET), WEC Energy Group, Inc. (NYSE:WEC), The Hershey Company (NYSE:HSY), and Chunghwa Telecom Co., Ltd (NYSE:CHT). This group of stocks’ market values are similar to EA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MET 34 1018231 -4
WEC 29 267388 14
HSY 33 958331 -6
CHT 6 123577 2
Average 25.5 591882 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $1987 million in EA’s case. Metlife Inc (NYSE:MET) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 6 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 returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on EA as the stock returned 30.5% so far in Q2 (through June 25th) 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.