We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards SAP SE (NYSE:SAP).
SAP SE (NYSE:SAP) investors should be aware of an increase in enthusiasm from smart money in recent months. SAP SE (NYSE:SAP) was in 19 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 20. There were 14 hedge funds in our database with SAP positions at the end of the fourth quarter. Our calculations also showed that SAP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Wall Street Bull
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 let’s review the recent hedge fund action encompassing SAP SE (NYSE:SAP).
Do Hedge Funds Think SAP Is A Good Stock To Buy Now?
At the end of March, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in SAP over the last 23 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in SAP SE (NYSE:SAP), which was worth $1055.1 million at the end of the fourth quarter. On the second spot was Windacre Partnership which amassed $244.8 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group 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 Windacre Partnership allocated the biggest weight to SAP SE (NYSE:SAP), around 6.09% of its 13F portfolio. Fisher Asset Management is also relatively very bullish on the stock, designating 0.74 percent of its 13F equity portfolio to SAP.
As one would reasonably expect, specific money managers were breaking ground themselves. Renaissance Technologies, created the biggest position in SAP SE (NYSE:SAP). Renaissance Technologies had $73.4 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $6.1 million investment in the stock during the quarter. The following funds were also among the new SAP investors: Dmitry Balyasny’s Balyasny Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as SAP SE (NYSE:SAP) but similarly valued. These stocks are Amgen, Inc. (NASDAQ:AMGN), HDFC Bank Limited (NYSE:HDB), Bristol Myers Squibb Company (NYSE:BMY), Philip Morris International Inc. (NYSE:PM), Shopify Inc (NYSE:SHOP), Lowe’s Companies, Inc. (NYSE:LOW), and Charter Communications, Inc. (NASDAQ:CHTR). This group of stocks’ market caps resemble SAP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMGN | 47 | 1001957 | -2 |
| HDB | 27 | 1964796 | -4 |
| BMY | 81 | 5037397 | -50 |
| PM | 48 | 5494085 | -4 |
| SHOP | 91 | 9984457 | 1 |
| LOW | 61 | 5171876 | -10 |
| CHTR | 74 | 16399220 | -16 |
| Average | 61.3 | 6436255 | -12.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 61.3 hedge funds with bullish positions and the average amount invested in these stocks was $6436 million. That figure was $1474 million in SAP’s case. Shopify Inc (NYSE:SHOP) is the most popular stock in this table. On the other hand HDFC Bank Limited (NYSE:HDB) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks SAP SE (NYSE:SAP) is even less popular than HDB. Our overall hedge fund sentiment score for SAP is 38.5. 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. Hedge funds clearly dropped the ball on SAP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on SAP as the stock returned 22.2% since Q1 (through July 16th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
