In this article, we discuss the 10 hedge funds that profited from Reddit’s meme stock craze. If you want to skip our detailed analysis of these hedge funds, go directly to the 5 Hedge Funds that Profited from Reddit’s Meme Stock Craze.
Hedge funds have been reeling from meme stock rallies over the past few months that are orchestrated by retail investors using internet platforms like Reddit to coordinate. Already under heavy pressure from the rise of fintech applications that have made the world of finance more accessible and inclusive, hedge funds have suffered record losses while attempting to short-sell stocks since the beginning of this year. However, the more shrewd hedge fund managers, who realize how the market dynamics are changing, have used the situation to their advantage.
For example, Michael Burry, the chief of Scion Asset Management, was one of the first to bring GameStop Corp. (NYSE: GME), the video game retailer and entertainment products seller, to prominence. He sold his stake, worth around $7 million, in the company in the second quarter of 2019 before reinvesting in the third quarter, pouring $17 million for 3 million shares. Burry also wrote to the board of directors of the firm thrice, asking them to clean up their act. A few months afterwards, these pleas caught the attention of Redditors.
These Redditors then drove one of the biggest stock rallies of the year, and the price of GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings, Inc. (NYSE: AMC), another firm in a similar situation, surged by over 500% in a matter of days. Some of the meme stocks presently popular on WallStreetBets, a 10-million strong Reddit forum, can offer investors an insight into what sectors of the market can expect increased volatility in the next few weeks. Hedge funds, wary of these stocks, are also actively tracing Reddit forums to stay updated.
AMC Entertainment Holdings, Inc. (NYSE: AMC), the Kansas-based movie theatre firm, and GameStop Corp. (NYSE: GME) have survived the short-selling attempts and remain priced higher than hedge funds might have expected after the initial meme stock rally in January. They have made hundreds of millions in profits to some funds, which are discussed in detail below, but have also resulted in losses worth more than $6 billion to others. It is, however, fair to say that hedge funds are on the backfoot in this meme stock battle with retail investors.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Crispin Odey of Odey Asset Management Group
With this context in mind, here is our list of the 10 hedge funds that profited from Reddit’s meme stock craze. These were ranked keeping in mind the overall profit, size of the hedge fund, and the market credence of the hedge fund manager.
Hedge Funds That Profited From Reddit’s Meme Stock Craze
10. Silver Lake Partners
Estimated Gain From Meme Stock Craze: $113 Million
Silver Lake Partners is placed tenth on our list of 10 hedge funds that profited from Reddit’s meme stock craze. It is a fund headquartered in California. It has a portfolio value of over $10 billion and concentrates on investments in tech-related companies. During the AMC Entertainment Holdings, Inc. (NYSE: AMC) short squeeze, as the share price surged close to 500% in January, Silver Lake sold off the stock it owned in the movie theatre chain and made around $113 million from the sale, according to a Bloomberg report published in February.
Silver Lake Partners has invested heavily in Airbnb, Inc. (NASDAQ: ABNB), a California-based vacation rental firm. At the end of the first quarter of 2021, 52 hedge funds in the database of Insider Monkey held stakes worth $2.4 billion in Airbnb, Inc. (NASDAQ: ABNB), down from 68 in the preceding quarter worth $1.6 billion.
Just like Tesla, Inc. (NASDAQ: TSLA), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), GameStop Corp. (NYSE: GME), and Clover Health Investments, Corp. (NASDAQ: CLOV), Airbnb, Inc. (NASDAQ: ABNB) is one of the stocks that Redditors recommend buying.
In its Q4 2020 investor letter, Blue Hawk Investment Group, an asset management firm, highlighted a few stocks and Airbnb, Inc. (NASDAQ: ABNB) was one of them. Here is what the fund said:
“We typically avoid new issues, with ABNB being a rare exception. ABNB fits right into our wheelhouse as a leader in a promising industry, with a disruptive business model, unique company culture, massive addressable market, and a name synonymous with a category (“got an Airbnb for the weekend”). Towards the end of the year, the narrative of the hot IPO/SPAC environment we found to be fitting, with exception. We believe grouping ABNB into this category is a mistake. The IPO was botched, but the mistake was the initial offering price being far too low in this case. We believe the reason for this initial mispricing was the proximity of the IPO to the vaccine effectiveness data release. The data turned out to be much better than anticipated, a blue-sky result, causing a drastic change in the outlook for travel and lodging, the industry in which ABNB operates. Bayes Theorem in action, people typically have a bias when incorporating new information, in that they do not adjust their view as quickly as they should, and the vaccine data release required an almost complete reversal of views.
Back to the company, we started buying on day one and continued to build a position into the $120s and $130s. A founder-led firm, we believe the company has an excellent management team, a very attractive growth profile with many levers at their disposal, and embedded optionality due to their attractive position in the travel ecosystem (and minimal reliance on Google). The most underappreciated aspect of the story is the attractiveness of the financial model. Not many IPOs come along that get us excited, but we believe the future is bright for this young company. We will reveal more details about our thesis in future letters.”
9. Engineers Gate Manager
Estimated Gain From Meme Stock Craze: N/A
Engineers Gate Manager is a hedge fund that operates from New York. It has a portfolio value of more than $2 billion and is managed by Greg Eisner who has developed a reputation for investments in the technology and services markets. The fund made a big bet on GameStop Corp. (NYSE: GME) stock at the end of 2020. Regulatory filings at the end of the first quarter of 2021 revealed that the fund had exited 95% of its position in GameStop Corp. (NYSE: GME), perhaps taking advantage of a record stock rally fueled by Redditors.
Engineers Gate Manager holds a large stake in Colgate-Palmolive Company (NYSE: CL), a New York-based consumer products firm. Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm First Eagle Investment Management is a leading shareholder in Colgate-Palmolive Company (NYSE: CL) with 11.9 million shares worth more than $940 million.
Colgate-Palmolive Company (NYSE: CL) stock is mentioned alongside Tesla, Inc. (NASDAQ: TSLA), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), GameStop Corp. (NYSE: GME), and Clover Health Investments, Corp. (NASDAQ: CLOV) on Reddit forums.
Here is what First Eagle Investment Management has to say about Colgate-Palmolive Company (NYSE: CL) in its Q1 2021 investor letter:
“The leading detractors in the quarter (included) Colgate-Palmolive Company. After a strong 2020 fueled in part by lockdown-driven demand, consumer staples stocks generally cooled during the first quarter as investors shifted attention to the more economically sensitive areas of the market likely to benefit from re-openings and improved discretionary spending. The effects of this rotation could be seen in the share price underperformance of names like Colgate-Palmolive.”
8. Landscape Capital Management
Estimated Gain From Meme Stock Craze: N/A
Landscape Capital Management is ranked eighth on our list of 10 hedge funds that profited from Reddit’s meme stock craze. The fund is headquartered in New Jersey and has a portfolio value of $637 million. It focuses on investments in the basic materials and services sectors of the economy. Reuters reports that the fund was one of the few that added to their position in GameStop Corp. (NYSE: GME) during the last quarter of 2020, just a few weeks before a record rally saw the share price of the video game retailer jump more than 700%, bringing in profits worth millions for those who had purchased the stock when it was cheap.
One of the top holdings of Landscape Capital Management is BHP Group (NYSE: BHP), a multinational mining company based in Australia. Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in BHP Group (NYSE: BHP) with 7.9 million shares worth more than $553 million.
Reddit forums are full of mentions of BHP Group (NYSE: BHP), as well as other stocks like Tesla, Inc. (NASDAQ: TSLA), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), GameStop Corp. (NYSE: GME), and Clover Health Investments, Corp. (NASDAQ: CLOV).
7. Shellback Capital
Estimated Gain From Meme Stock Craze: $65 Million
Shellback Capital is a hedge fund managed by Doug Gordon, Jon Hilsabeck, and Don Jabro. It has a portfolio value of more than $1.6 billion with investments concentrated in the services and industrial goods markets. The fund is based in Boston. The fund bought 200,000 shares in GameStop Corp. (NYSE: GME) in late 2020, a stake that was worth over $3.7 million at the time. If the fund had sold these shares in the ensuing weeks, as the share price of GameStop Corp. (NYSE: GME) climbed to a record $347, it would have netted a profit of $65 million.
Shellback Capital has invested heavily in Accenture plc (NYSE: ACN), an Irish firm that markets consulting and professional services. At the end of the first quarter of 2021, 48 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in Accenture plc (NYSE: ACN), down from 50 in the previous quarter worth $2.1 billion.
Tesla, Inc. (NASDAQ: TSLA), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), GameStop Corp. (NYSE: GME), and Clover Health Investments, Corp. (NASDAQ: CLOV), much like Accenture plc (NYSE: ACN), have been hyped by Redditors in recent weeks.
In its Q1 2021 investor letter, Fiduciary Management Inc, an asset management firm, highlighted a few stocks and Accenture plc (NYSE: ACN) was one of them. Here is what the fund said:
“Even great companies can get too expensive. In early January, we sold our long-standing position in Accenture PLC after the company’s valuation exceeded 30 times next 12 months (NTM) earnings per share (EPS). We originally invested in Accenture at the launch of the FMI International strategy at a valuation below 15 times NTM EPS and held the stock for over ten years. We added to the holding numerous times in the early years, growing the position size to as high as 5.5% in late 2014, before dialing it back in recent years as the valuation became less compelling. It is one of the world’s largest information technology services firms, specializing in helping complex, global businesses navigate disruption, and focusing on next-generation services like digital, cloud, and security. For years, the investment allowed FMI to capture the inherently higher growth of technology-related industries (GDP+) without investing directly in pure “invention-oriented” technology companies. Through Accenture we were able to avoid some of the shortfalls of tech investing: technology obsolescence, short product cycles, and subpar return on invested capital (ROIC). It grew steadily, was solidly profitable, capital-light, and generated high returns, all while maintaining a rock-solid balance sheet. It compounded its business value for many years, outperforming the MSCI EAFE indices by over 450% during our holding period. Unfortunately, the market increasingly recognized the company’s positive attributes, and the stock’s discount to intrinsic value slowly evaporated. Despite our admiration for the business, it exceeded our valuation threshold. We will continue to follow the company closely for future opportunities.”
6. Odey Asset Management
Estimated Gain From Meme Stock Craze: 22%
Odey Asset Management is a London-based hedge fund with a portfolio value of close to $357 million. It is managed by Crispin Odey and focuses on investments in technology, basic materials, and finance stocks. It is placed sixth on our list of 10 hedge funds that profited from Reddit’s meme stock craze. According to a report published by Financial Times in February, Odey European Fund, a subsidiary of Odey Asset Management, registered a gain of 22% in the first two months of this year after losing 30% in the previous year. This gain was attributed to a meme stock rally at the turn of the year that the firm used to its advantage.
Crispin Odey of Odey Asset Management Group
One of the premier holdings of Odey Asset Management is Barrick Gold Corporation (NYSE: GOLD), a Canadian mining company with large stakes in the copper and gold business. At the end of the first quarter of 2021, 49 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in Barrick Gold Corporation (NYSE: GOLD), down from 53 the preceding quarter worth $1.7 billion.
Amid inflation fears, Redditors recommend buying Barrick Gold Corporation (NYSE: GOLD), alongside other favorites like Tesla, Inc. (NASDAQ: TSLA), Apple Inc. (NASDAQ: AAPL), Shopify Inc. (NYSE: SHOP), AMC Entertainment Holdings, Inc. (NYSE: AMC), GameStop Corp. (NYSE: GME), and Clover Health Investments, Corp. (NASDAQ: CLOV).
In its Q4 2020 investor letter, GoodHaven Capital Management, an asset management firm, highlighted a few stocks and Barrick Gold Corporation (NYSE: GOLD) was one of them. Here is what the fund said:
“Barrick’s recent results have been consistent with our expectations. Barrick has begun inching up the dividend as planned, which should continue increasing absent them finding a large acquisition (they want more copper assets) or a materially lower price of gold. We’d also expect periodic special dividends during stronger gold price environments. At current gold prices we estimate normalized free cash flow at Barrick of over $1.60/share. The company is now about net-debt free. We see plenty of upside and absent a collapse in gold not too much downside. Missing from much of the public discussions about gold, but potentially interesting, is the supply/demand backdrop. As the Wall Street Journal (8/16/20) recently said “gold is amongst the rarest metals in the earth’s crust and much of the easier to get to ore has already been mined. What is left is harder to find and more expensive to extract…” According to the World Platinum Council, it was forecasted that there will be a supply and demand imbalance of 1.2 million ounces globally. The potential macro tailwinds that could add value to an alternate currency like gold including currency concerns, excessive debt and continuing negative real interest rates are still out there. While the shares performed well for the year they were weak in the second half and now stand more attractively priced.”
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Disclose. None. 10 Hedge Funds that Profited from Reddit’s Meme Stock Craze is originally published on Insider Monkey.
