Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 eBay Inc (NASDAQ:EBAY).
eBay Inc (NASDAQ:EBAY) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that EBAY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Seth Klarman of Baupost Group
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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s view the recent hedge fund action encompassing eBay Inc (NASDAQ:EBAY).
Hedge fund activity in eBay Inc (NASDAQ:EBAY)
Heading into the first quarter of 2020, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in EBAY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Baupost Group was the largest shareholder of eBay Inc (NASDAQ:EBAY), with a stake worth $722 million reported as of the end of September. Trailing Baupost Group was Renaissance Technologies, which amassed a stake valued at $546 million. Elliott Management, AQR Capital Management, and Two Sigma Advisors 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 Baupost Group allocated the biggest weight to eBay Inc (NASDAQ:EBAY), around 7.97% of its 13F portfolio. Kingstown Capital Management is also relatively very bullish on the stock, designating 7.87 percent of its 13F equity portfolio to EBAY.
Seeing as eBay Inc (NASDAQ:EBAY) has experienced a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds who sold off their entire stakes by the end of the third quarter. It’s worth mentioning that Michael Lowenstein’s Kensico Capital said goodbye to the largest investment of the 750 funds followed by Insider Monkey, worth about $257.7 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund said goodbye to about $46.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to eBay Inc (NASDAQ:EBAY). We will take a look at Atlassian Corporation Plc (NASDAQ:TEAM), AvalonBay Communities Inc (NYSE:AVB), Canon Inc. (NYSE:CAJ), and WEC Energy Group, Inc. (NYSE:WEC). This group of stocks’ market values resemble EBAY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TEAM | 62 | 2649059 | 9 |
| AVB | 23 | 442044 | 2 |
| CAJ | 8 | 69992 | 0 |
| WEC | 15 | 211776 | -7 |
| Average | 27 | 843218 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $843 million. That figure was $3621 million in EBAY’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. eBay Inc (NASDAQ:EBAY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on EBAY as the stock returned -1.2% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
