Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Yelp Inc (NYSE:YELP) was in 26 hedge funds’ portfolios at the end of September. YELP has seen a decrease in support from the world’s most elite money managers recently. There were 27 hedge funds in our database with YELP positions at the end of the previous quarter. Our calculations also showed that YELP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the key hedge fund action surrounding Yelp Inc (NYSE:YELP).
How have hedgies been trading Yelp Inc (NYSE:YELP)?
At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the second quarter of 2019. By comparison, 30 hedge funds held shares or bullish call options in YELP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Yelp Inc (NYSE:YELP), which was worth $125.9 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $106.8 million worth of shares. Millennium Management, Goodnow Investment Group, and Tenzing Global Investors 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 Tenzing Global Investors allocated the biggest weight to Yelp Inc (NYSE:YELP), around 13.62% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, designating 3.78 percent of its 13F equity portfolio to YELP.
Because Yelp Inc (NYSE:YELP) has experienced declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers who were dropping their entire stakes last quarter. It’s worth mentioning that Seth Wunder’s Black-and-White Capital said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $20.5 million in stock. Greg Poole’s fund, Echo Street Capital Management, also sold off its stock, about $11.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Yelp Inc (NYSE:YELP). We will take a look at Carpenter Technology Corporation (NYSE:CRS), Vishay Intertechnology, Inc. (NYSE:VSH), Atlantica Yield plc (NASDAQ:AY), and Universal Forest Products, Inc. (NASDAQ:UFPI). This group of stocks’ market values resemble YELP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRS | 13 | 72105 | 1 |
| VSH | 19 | 323885 | 0 |
| AY | 19 | 152882 | 1 |
| UFPI | 20 | 79055 | 3 |
| Average | 17.75 | 156982 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $418 million in YELP’s case. Universal Forest Products, Inc. (NASDAQ:UFPI) is the most popular stock in this table. On the other hand Carpenter Technology Corporation (NYSE:CRS) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Yelp Inc (NYSE:YELP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately YELP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on YELP were disappointed as the stock returned -0.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
