After a frantic couple of days, our data team here at Insider Monkey has sifted through the 13F filings of all 737 hedge funds we track, and collated the data, which we’ll be using to release several reports in the coming days. Why are these reports, and the stock picking activity of our funds so important? After all, haven’t hedge funds been collectively under-performing the market every year since 2008, including 2014? Firstly, you have to understand that hedge fund under-performance is due to two key reasons, the first being that the average equity hedge fund is only 50% net long, whereas indices are 100% net long. Thus, when the market returns 10%, a 50% net long fund is only going to return 5%. Second, funds charge management fees and performance fees that vary, but typically average 2%/20% respectively. Thus, a 5% return gets further diluted by these fees.
So why should you be following our picks again? Because despite their under-performance and the faults inherent in directly investing with them, hedge funds do have tremendous stock picking skill, especially when those hedge funds are limited to only the best in the industry, which generate meaningful alpha. Take for example, that if investors had simply invested in the most popular 30 stocks among our funds, they would have outperformed the market by 2 percentage points annually. Our research has also demonstrated that our funds do even better on small-cap stocks, and that their most popular small-cap picks outperformed the market by double digits in back tests we’ve performed. This certainly makes sense, as their ability to gather and analyze data of lesser-known companies and their sectors is superior to the average investor’s, especially compared to large-cap stocks.
Now then, let’s take a look at the top five technology stocks our funds love, beginning with the number one overall stock among our funds for two quarters running. If you’d like to compare lists afterwards, check out our top tech stocks listing from the previous quarter.
1. Apple Inc. (NASDAQ:AAPL) is still the most popular stock among our hedge funds. At the end of the 2014, 20.2% of our tracked hedge funds were invested in Apple Inc. While that was a decrease from the 22.7% that held it at the end of the fourth quarter, it was still by far the most popular tech stock. Carl Icahn, Philippe Laffont, and David Einhorn are among the hedge funds with large Apple Inc. positions, and Icahn is a firm believer that the stock has nowhere to go but further up, despite its impressive 16.61% rise already in 2015, and he’s keeping pressure on Apple’s management to ensure that happens. However, David Tepper, George Soros, and Peter Rathjens of Arrowstreet Capital all dumped their positions in the tech giant, feeling the ceiling had or was about to be reached.
2. Google Inc (NASDAQ:GOOGL) remains the second most-owned tech stock, despite hedge funds making a large migration from it at the end of the year. Ownership dropped steeply to 16.3% from 20.2%, which also caused it to fall from second to fifth among all stocks. Google appears to have peaked in early 2014, and is down just under 10% over the past calendar year. Crispin Odey’s Odey Asset Management closed one of the largest positions in Google among our funds during the quarter, selling off all 175,577 shares. Boykin Curry, Ken Fisher, and Andreas Halvorsen (who opened his position in the third quarter) all remain large shareholders of Google.
3. Facebook Inc (NASDAQ:FB) climbs into third place after not making the top five on our last list, with 16% ownership at the end of the 2014, compared to 15.3% ownership at the end of the third quarter. Facebook shares have mostly stalled after a torrid 8-month run from the middle of 2013 to early 2014 that saw the stock gain more than 150%. Facebook is up about 10% since then, though down 1.68% in 2015. While the social media giant has had positive earnings reports, there is concern over the stagnating user growth, which has left analysts and investors mixed on its potential. Stephen Mandel, and David E. Shaw both made big increases to their positions, while John Griffin opened a new position with 3.24 million shares. On the other hand, both Andreas Halvorsen and David Tepper sold off their entire stakes.
4. Microsoft Corporation (NASDAQ:MSFT) is fourth among tech stocks, though fund ownership has decreased to 15.5% from 17.5%. After remaining mostly stagnant for the better part of a decade, Microsoft has enjoyed a strong two-year run, thanks in part to activist investor Jeffrey Ubben, who took a position in early 2013 and began to extol the virtues of the company which had previously been ignored. Ubben remains confident in its new direction, and maintains a stable of 74.24 million shares, while Ken Griffin and Israel Englander were both bullish on Microsoft in the fourth quarter. On the other hand, Lone Pine’s Stephen Mandel sold 16.88 of his 23.34 million shares last quarter.
5. Micron Technology, Inc. (NASDAQ:MU) may be the least recognizable name on the list, but it’s a tech stock our funds have loved for awhile, and it also placed sixth at the close of the third quarter. Fund ownership has decreased however, down to 15.3% from 16.1%. Like Microsoft, Micron has enjoyed a very strong two-year run, up over 400%, and investors may feel the ride has reached its zenith. Point State Capital’s Zach Schreiber and Oz Management’s Daniel S. Och added a large number of shares to their positions in the fourth quarter, while Seth Klarman sold 31.95 million shares of what had been his largest position since late 2013.
There you have it, the top five tech stocks our tracked funds loved heading into 2015. Note that only one tech stock fell out of the top five from our list last quarter, which was Alibaba Group Holding Ltd (NYSE:BABA), which has proven to be fortuitous for those funds that got out, as Alibaba is having a horrendous 2015 thus far, down 16.55% year-to-date.
Disclosure: None
