Our data team at Insider Monkey has finished the monumental task of pouring through the 13F filings of each of the 730 hedge funds in our database (or at least, those which filed for the latest reporting period) and collating the results to provide us with a wealth of data on the activity of hedge funds during the first quarter. We’ve covered the new top five stocks of hedge funds, which witnessed the surprise dethroning of Apple Inc. (NASDAQ:AAPL) as the hedge funds’ favorite stock.
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Now we’ll take a look at the five stocks which had the greatest number of funds buy into them during the first quarter (disregarding merger arbitrage stocks like Pharmacyclics, Inc. (NASDAQ:PCYC), which get a lot of hedge fund activity). Unsurprisingly, the company that unseated Apple as the top hedge fund pick was one of the hottest stock picks during the quarter, while several tech giants also ranked as hot commodities.
Let’s start with Citizens Financial Group Inc (NYSE:CFG), which had the largest gain in our database with overall fund ownership rising by more than 150% to 76 from 30, while invested capital nearly doubled to $2.33 billion from $1.17 billion. Royal Bank of Scotland, which bought Citizens Financial Group Inc (NYSE:CFG) in 1988, spun off a 25% ownership interest of the company into a separate publicly traded entity in September of last year and plans to divest itself of the US retail bank holding company by the end of 2015 (due to pressure from the U.K government to raise capital). Shares have gained 22% since its IPO and the stock still trades at a price-to-book ratio of just 0.73. Citizens Financial Group Inc (NYSE:CFG) also pays out a quarterly dividend of $0.10 with a yield of 1.52%, making it an attractive investment on several levels.
The large amount of activity in the stock during the first quarter likely coincides with the end of the IPO lockup agreement on March 23 that placed restrictions on major shareholders and the end of which would have enabled many more investors to find shares to purchase. As such, the new fund ownership total should be taken with a slight caveat that the rise probably more accurately reflects the interest in the stock from the beginning, rather than new interest in it. Nonetheless, it is undoubtedly the biggest surprise to make the list. Some of the funds with new stakes in Citizens Financial Group Inc (NYSE:CFG) include Brian Jackelow’s SAB Capital Management and John Khoury’s Long Pond Capital.
JD.Com Inc(ADR) (NASDAQ:JD) also had an IPO in 2014, though the lockup period on its shares ended in late November. The Chinese online direct-sales company then had a secondary share offering in December, which left plenty of shares for new investors to open positions in the stock during December and January. Those shares were certainly coveted by the hedge funds in our database during the first quarter, with 68 of them reporting ownership positions totaling $8.23 billion. That compared to just 32 funds with holdings in the stock totaling $4.68 billion at the end of 2014. The bullish hedge funds have been right on the mark with JD.Com Inc(ADR) (NASDAQ:JD), as shares have risen by nearly 50% year-to-date and 15% during the second quarter after all of those new positions had been established. The company is proving particularly attractive to Tiger Cubs, with Tiger Global, Maverick Capital, Hoplite Capital, Coatue Management, and Stephen Mandel’s Lone Pine Capital all having positions in JD.Com Inc(ADR) (NASDAQ:JD).
Actavis plc (NYSE:ACT) is the company that dethroned Apple from the top of the hedge fund ownership charts, as 157 funds reported ownership in the pharmaceutical giant at the end of the first quarter, up from 131 at the end of 2014. Apple meanwhile could only inch up to 150 from 149. Actavis also surpassed Apple in terms of invested capital (though it was not first in this regard) from the hedge funds we track, soaring to $21.97 billion from just $14.0 billion. Apple meanwhile inched up just 3% to $21.52 billion, despite its stock rising by 13% during the quarter (which means collectively, funds actually sold off some shares). Actavis plc (NYSE:ACT)’ completion of the acquisition of Allergan during the quarter certainly seems to be the biggest catalyst that brought new investors into the stock, as Allergan shareholders were given 0.3683 shares of Actavis for each share of Allergan they owned, in addition to a cash payment of $129.22 per share. While those new shareholders did not have to hold on to their positions, some clearly like the company with Allergan in the fold, including former top Allergan shareholder Bill Ackman of Pershing Square, who held on to 1.35 million shares of Actavis plc (NYSE:ACT), though he would have been granted approximately 9.81 million shares of Actavis through his former 26.64 million share position in Allergan.
Twitter Inc (NYSE:TWTR) lands in fourth place, with 64 funds reporting an aggregate of $1.75 billion invested in the social media company. That’s a big swing in momentum for Twitter, which previously had limited support from the funds in our database: at the end of 2014 just 42 funds had investments totaling $1.01 billion in the company. Like the final pick on our list, which we’ll get to, Twitter Inc (NYSE:TWTR) finally cashed in on some of its promise with its fourth quarter 2014 earnings, reporting revenue and earnings that eclipsed analyst estimates, which led to it being one of the top large-cap gainers of the first quarter. Twitter Inc (NYSE:TWTR) also purchased Periscope, the replayable live-streaming app, during the quarter, which has proven to be a successful purchase and helped to generate additional interest in the social platform. However, Twitter’s most recent earnings report for the first quarter fell beneath revenue expectations and its own guidance, surely disappointing some of those new investors like billionaire Daniel Och’s OZ Management. Shares of Twitter have fallen by 26% in the second quarter.
Amazon.com, Inc. (NASDAQ:AMZN) lands in fifth, with a gain of 20 hedge fund owners from our database during the quarter. 96 funds reported holding an aggregate of $8.40 billion in Amazon’s stock, an increase from 76 funds holding $5.91 billion worth of shares at the end of 2014. Amazon.com, Inc. (NASDAQ:AMZN) also wowed investors with its earnings report delivered in the first quarter, showing a massive uptick in earnings to $0.45 per share, crushing the paltry estimates of $0.17 per share. However, unlike Twitter, Amazon has followed it up with another strong earnings report which has only sent shares even higher, now up by 36% year-to-date. Revenue growth was strong, though earnings did slip back into negative territory. Investors seemed little concerned with that however and were instead bullish on the strong growth of Amazon Web Services, which generated $265 million in operating income during the first quarter. That had to please some of Amazon.com, Inc. (NASDAQ:AMZN)’s new investors, including Donald Chiboucis’ Columbus Circle Investors and Rob Citrone’s Discovery Capital Management.
Why are we interested in the 13F filings and trading activity of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds, based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 139% over the last 32 months, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
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