Hedge Funds Are Dumping Twitter Inc (TWTR)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Twitter Inc (NYSE:TWTR) based on that data.

Is Twitter Inc (NYSE:TWTR) a healthy stock for your portfolio? The smart money was in a bearish mood. The number of long hedge fund bets went down by 18 lately. Twitter Inc (NYSE:TWTR) was in 89 hedge funds’ portfolios at the end of June. The all time high for this statistic is 107. Our calculations also showed that TWTR ranked 26th among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ken Griffin of Citadel Investment Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. With all of this in mind let’s go over the fresh hedge fund action surrounding Twitter Inc (NYSE:TWTR).

Do Hedge Funds Think TWTR Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 89 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 68 hedge funds with a bullish position in TWTR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Twitter Inc (NYSE:TWTR) was held by ARK Investment Management, which reported holding $854.4 million worth of stock at the end of June. It was followed by Elliott Investment Management with a $688.1 million position. Other investors bullish on the company included Lone Pine Capital, SRS Investment Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Ivy Lane Capital allocated the biggest weight to Twitter Inc (NYSE:TWTR), around 15.33% of its 13F portfolio. Stone House Capital is also relatively very bullish on the stock, dishing out 11.63 percent of its 13F equity portfolio to TWTR.

Because Twitter Inc (NYSE:TWTR) has witnessed bearish sentiment from hedge fund managers, logic holds that there exists a select few hedge funds who sold off their entire stakes heading into Q3. At the top of the heap, Alex Sacerdote’s Whale Rock Capital Management cut the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $239.2 million in stock, and David Brown’s Hawk Ridge Management was right behind this move, as the fund cut about $50.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 18 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Twitter Inc (NYSE:TWTR). We will take a look at Banco Bradesco SA (NYSE:BBD), DocuSign, Inc. (NASDAQ:DOCU), Freeport-McMoRan Inc. (NYSE:FCX), Ambev SA (NYSE:ABEV), BioNTech SE (NASDAQ:BNTX), Aon plc (NYSE:AON), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks’ market caps are closest to TWTR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $3061 million. That figure was $6031 million in TWTR’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Twitter Inc (NYSE:TWTR) is more popular among hedge funds. Our overall hedge fund sentiment score for TWTR is 62. 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. 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 24.1% in 2021 through September 20th and still beat the market by 6.9 percentage points. Unfortunately TWTR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TWTR were disappointed as the stock returned -11.4% since the end of the second quarter (through 9/20) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.