#3 Stock Among Hedge Funds Beats The Market

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Amazon.com, Inc. (NASDAQ:AMZN).

Amazon.com, Inc. (NASDAQ:AMZN) was in 243 hedge funds’ portfolios at the end of March. The all time high for this statistic is 273. AMZN has experienced a large decrease in support from the world’s most elite money managers recently. There were 273 hedge funds in our database with AMZN holdings at the end of December. Our calculations also showed that AMZN ranked 3rd among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the eyes of most market participants, hedge funds are assumed to be unimportant, old investment tools of the past. While there are more than 8000 funds with their doors open at present, Our experts choose to focus on the bigwigs of this group, around 850 funds. These investment experts oversee bulk of the smart money’s total capital, and by watching their unrivaled investments, Insider Monkey has come up with numerous investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website.

Bill Miller of Miller Value Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a glance at the latest hedge fund action regarding Amazon.com, Inc. (NASDAQ:AMZN).

Do Hedge Funds Think AMZN Is A Good Stock To Buy Now?

At Q1’s end, a total of 243 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the fourth quarter of 2020. On the other hand, there were a total of 251 hedge funds with a bullish position in AMZN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the most valuable call position in Amazon.com, Inc. (NASDAQ:AMZN), worth close to $10.5084 billion, corresponding to 2.8% of its total 13F portfolio. On Citadel Investment Group’s heels is SB Management, led by Masayoshi Son, holding a $6.211 billion position; 40% of its 13F portfolio is allocated to the stock. Other peers with similar optimism encompass Ken Fisher’s Fisher Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Chase Coleman’s Tiger Global Management LLC. In terms of the portfolio weights assigned to each position SB Management allocated the biggest weight to Amazon.com, Inc. (NASDAQ:AMZN), around 40% of its 13F portfolio. VGI Partners is also relatively very bullish on the stock, earmarking 21.48 percent of its 13F equity portfolio to AMZN.

Judging by the fact that Amazon.com, Inc. (NASDAQ:AMZN) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few funds that elected to cut their full holdings heading into Q2. Intriguingly, Jeffrey Talpins’s Element Capital Management sold off the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $116.2 million in stock. Andrew Immerman and Jeremy Schiffman’s fund, Palestra Capital Management, also dumped its stock, about $107.3 million worth. These transactions are interesting, as total hedge fund interest fell by 30 funds heading into Q2.

Let’s go over hedge fund activity in other stocks similar to Amazon.com, Inc. (NASDAQ:AMZN). These stocks are Alphabet Inc (NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB), Tesla Inc. (NASDAQ:TSLA), Alibaba Group Holding Limited (NYSE:BABA), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Berkshire Hathaway Inc. (NYSE:BRK-B), and JPMorgan Chase & Co. (NYSE:JPM). All of these stocks’ market caps resemble AMZN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 133.9 hedge funds with bullish positions and the average amount invested in these stocks was $18151 million. That figure was $50422 million in AMZN’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 62 bullish hedge fund positions. Amazon.com, Inc. (NASDAQ:AMZN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMZN is 95.7. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on AMZN, though not to the same extent, as the stock returned 8.2% since Q1 (through June 11th) and outperformed the market as well.

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