While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Shopify Inc (NYSE:SHOP).
Shopify Inc (NYSE:SHOP) was in 57 hedge funds’ portfolios at the end of June. The all time high for this statistics is 43. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. SHOP has seen an increase in hedge fund sentiment lately. There were 43 hedge funds in our database with SHOP positions at the end of the first quarter. Our calculations also showed that SHOP isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s review the new hedge fund action regarding Shopify Inc (NYSE:SHOP).
What does smart money think about Shopify Inc (NYSE:SHOP)?
Heading into the third quarter of 2020, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in SHOP a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Lone Pine Capital was the largest shareholder of Shopify Inc (NYSE:SHOP), with a stake worth $1588.7 million reported as of the end of September. Trailing Lone Pine Capital was Citadel Investment Group, which amassed a stake valued at $914.7 million. SCGE Management, Whale Rock Capital Management, and Arrowstreet Capital 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 Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 32.35% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, designating 15.47 percent of its 13F equity portfolio to SHOP.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Tairen Capital, managed by Larry Chen and Terry Zhang, assembled the biggest position in Shopify Inc (NYSE:SHOP). Tairen Capital had $99.7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $64.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Charles Clough’s Clough Capital Partners, Michael Rockefeller and KarláKroeker’s Woodline Partners, and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks similar to Shopify Inc (NYSE:SHOP). We will take a look at Linde plc (NYSE:LIN), Philip Morris International Inc. (NYSE:PM), International Business Machines Corp. (NYSE:IBM), Citigroup Inc. (NYSE:C), Charter Communications, Inc. (NASDAQ:CHTR), Wells Fargo & Company (NYSE:WFC), and BHP Group (NYSE:BBL). All of these stocks’ market caps are similar to SHOP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LIN | 52 | 3643095 | -1 |
| PM | 53 | 2574980 | 5 |
| IBM | 46 | 918051 | 5 |
| C | 96 | 6229205 | 10 |
| CHTR | 96 | 11227561 | -8 |
| WFC | 86 | 10344809 | 10 |
| BBL | 22 | 919411 | 1 |
| Average | 64.4 | 5122445 | 3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 64.4 hedge funds with bullish positions and the average amount invested in these stocks was $5122 million. That figure was $5916 million in SHOP’s case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 22 bullish hedge fund positions. Shopify Inc (NYSE:SHOP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SHOP is 63.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.2% in 2020 through October 16th and surpassed the market by 19.7 percentage points. Unfortunately SHOP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SHOP investors were disappointed as the stock returned 12.4% since the end of June (through 10/16) 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.
Follow Shopify Inc. (NYSE:SHOP)
Follow Shopify Inc. (NYSE:SHOP)
Disclosure: None. This article was originally published at Insider Monkey.
