Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Electronic Arts Inc. (NASDAQ:EA).
Is Electronic Arts Inc. (NASDAQ:EA) a healthy stock for your portfolio? The smart money is becoming hopeful. The number of long hedge fund positions moved up by 5 in recent months. Our calculations also showed that EA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 44 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Gil Simon of SoMa Equity Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. 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. Now we’re going to review the recent hedge fund action surrounding Electronic Arts Inc. (NASDAQ:EA).
How have hedgies been trading Electronic Arts Inc. (NASDAQ:EA)?
At Q1’s end, a total of 73 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EA over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Electronic Arts Inc. (NASDAQ:EA), with a stake worth $301.1 million reported as of the end of September. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $204.1 million. Renaissance Technologies, SoMa Equity Partners, and SRS Investment 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 SoMa Equity Partners allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 9% of its 13F portfolio. KCL Capital is also relatively very bullish on the stock, designating 4.96 percent of its 13F equity portfolio to EA.
As industrywide interest jumped, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Electronic Arts Inc. (NASDAQ:EA). Arrowstreet Capital had $95.2 million invested in the company at the end of the quarter. John Smith Clark’s Southpoint Capital Advisors also made a $25 million investment in the stock during the quarter. The following funds were also among the new EA investors: Steve Cohen’s Point72 Asset Management, Brad Stephens’s Six Columns Capital, and Eli Cohen’s Crescent Park Management.
Let’s now review hedge fund activity in other stocks similar to Electronic Arts Inc. (NASDAQ:EA). We will take a look at Metlife Inc (NYSE:MET), WEC Energy Group, Inc. (NYSE:WEC), The Hershey Company (NYSE:HSY), and Chunghwa Telecom Co., Ltd (NYSE:CHT). This group of stocks’ market caps are closest to EA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MET | 34 | 1018231 | -4 |
| WEC | 29 | 267388 | 14 |
| HSY | 33 | 958331 | -6 |
| CHT | 6 | 123577 | 2 |
| Average | 25.5 | 591882 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $1987 million in EA’s case. Metlife Inc (NYSE:MET) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Electronic Arts Inc. (NASDAQ:EA) is more popular among hedge funds. 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 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on EA, though not to the same extent, as the stock returned 19.6% in Q2 (through May 22nd) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
