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Were Hedge Funds Right About Piling Into Uber Technologies, Inc. (UBER)?

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 Uber Technologies, Inc. (NYSE:UBER) and determine whether the smart money was really smart about this stock.

Is Uber Technologies, Inc. (NYSE:UBER) a bargain? Money managers were turning bullish at the end of March. The number of bullish hedge fund bets went up by 3. Our calculations also showed that UBER ranked 22nd 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.

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 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. 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.

YORK CAPITAL MANAGEMENT

James Dinan of York 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 take a peek at the key hedge fund action surrounding Uber Technologies, Inc. (NYSE:UBER).

What does smart money think about Uber Technologies, Inc. (NYSE:UBER)?

At Q1’s end, a total of 97 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in UBER a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

More specifically, Altimeter Capital Management was the largest shareholder of Uber Technologies, Inc. (NYSE:UBER), with a stake worth $869.8 million reported as of the end of September. Trailing Altimeter Capital Management was Viking Global, which amassed a stake valued at $732.2 million. Hillhouse Capital Management, Tiger Global Management LLC, and Southpoint Capital 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 Glade Brook Capital Partners allocated the biggest weight to Uber Technologies, Inc. (NYSE:UBER), around 96.17% of its 13F portfolio. Tao Capital is also relatively very bullish on the stock, setting aside 52.45 percent of its 13F equity portfolio to UBER.

Now, specific money managers have jumped into Uber Technologies, Inc. (NYSE:UBER) headfirst. Composite Capital, managed by David Ma, established the biggest position in Uber Technologies, Inc. (NYSE:UBER). Composite Capital had $137.7 million invested in the company at the end of the quarter. Eric Bannasch’s Cadian Capital also initiated a $126.7 million position during the quarter. The other funds with new positions in the stock are Hyder Ahmad’s Broad Peak Investment Holdings, James Dinan’s York Capital Management, and Aaron Cowen’s Suvretta Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Uber Technologies, Inc. (NYSE:UBER). We will take a look at Takeda Pharmaceutical Company Limited (NYSE:TAK), Micron Technology, Inc. (NASDAQ:MU), Target Corporation (NYSE:TGT), and Brookfield Asset Management Inc. (NYSE:BAM). This group of stocks’ market values resemble UBER’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TAK 22 734533 -6
MU 94 3990785 5
TGT 54 2208909 1
BAM 37 886441 3
Average 51.75 1955167 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.75 hedge funds with bullish positions and the average amount invested in these stocks was $1955 million. That figure was $5085 million in UBER’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Uber Technologies, Inc. (NYSE:UBER) 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 gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately UBER wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UBER were disappointed as the stock returned 9.5% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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