Were Hedge Funds Right About Shopify Inc (SHOP)?

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. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Shopify Inc (NYSE:SHOP).

Shopify Inc (NYSE:SHOP) investors should pay attention to a decrease in hedge fund sentiment lately. SHOP was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 37 hedge funds in our database with SHOP positions at the end of the previous quarter. Our calculations also showed that SHOP 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).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a look at the fresh hedge fund action regarding Shopify Inc (NYSE:SHOP).

How are hedge funds trading Shopify Inc (NYSE:SHOP)?

Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in SHOP a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, Lone Pine Capital was the largest shareholder of Shopify Inc (NYSE:SHOP), with a stake worth $720.7 million reported as of the end of September. Trailing Lone Pine Capital was Citadel Investment Group, which amassed a stake valued at $399.7 million. Abdiel Capital Advisors, SCGE Management, and Whale Rock Capital 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 Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 33.17% of its 13F portfolio. Abdiel Capital Advisors is also relatively very bullish on the stock, setting aside 23.5 percent of its 13F equity portfolio to SHOP.

Since Shopify Inc (NYSE:SHOP) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few funds that elected to cut their positions entirely last quarter. Interestingly, Stanley Druckenmiller’s Duquesne Capital said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, valued at close to $66.2 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $37.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 7 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Shopify Inc (NYSE:SHOP). These stocks are Simon Property Group, Inc (NYSE:SPG), UBS Group AG (NYSE:UBS), Activision Blizzard, Inc. (NASDAQ:ATVI), and Banco Santander (Brasil) SA (NYSE:BSBR). This group of stocks’ market values are similar to SHOP’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1132 million. That figure was $3076 million in SHOP’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 8 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 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on SHOP as the stock returned 54.3% during the same time period and outperformed the market by an even larger margin.

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.