Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Tesla Inc. (NASDAQ:TSLA) to find out whether there were any major changes in hedge funds’ views.
Is Tesla Inc. (NASDAQ:TSLA) the right pick for your portfolio? Investors who are in the know were taking a pessimistic view. The number of long hedge fund positions went down by 2 lately. Tesla Inc. (NASDAQ:TSLA) was in 60 hedge funds’ portfolios at the end of June. The all time high for this statistic is 68. Our calculations also showed that TSLA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 62 hedge funds in our database with TSLA positions at the end of the first quarter.
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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cathie Wood of ARK Investment Management
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. Keeping this in mind let’s take a peek at the new hedge fund action encompassing Tesla Inc. (NASDAQ:TSLA).
Do Hedge Funds Think TSLA Is A Good Stock To Buy Now?
At second quarter’s end, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. By comparison, 63 hedge funds held shares or bullish call options in TSLA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Tesla Inc. (NASDAQ:TSLA) was held by Citadel Investment Group, which reported holding $16028.3 million worth of stock at the end of June. It was followed by ARK Investment Management with a $3693.3 million position. Other investors bullish on the company included Coatue Management, D E Shaw, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Value Star Asset Management allocated the biggest weight to Tesla Inc. (NASDAQ:TSLA), around 27.63% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, dishing out 9.6 percent of its 13F equity portfolio to TSLA.
Judging by the fact that Tesla Inc. (NASDAQ:TSLA) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that elected to cut their entire stakes in the second quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, worth close to $776.7 million in stock, and Daniel S. Och’s OZ Management was right behind this move, as the fund cut about $672.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds in the second quarter.
Let’s go over hedge fund activity in other stocks similar to Tesla Inc. (NASDAQ:TSLA). These stocks are Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Alibaba Group Holding Limited (NYSE:BABA), Visa Inc (NYSE:V), NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), and Johnson & Johnson (NYSE:JNJ). This group of stocks’ market valuations match TSLA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRK-B | 116 | 22380662 | 5 |
| TSM | 64 | 10694405 | -12 |
| BABA | 146 | 16793500 | 11 |
| V | 162 | 27609638 | -2 |
| NVDA | 86 | 9098047 | 6 |
| JPM | 108 | 4928203 | -3 |
| JNJ | 88 | 7057087 | 7 |
| Average | 110 | 14080220 | 1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 110 hedge funds with bullish positions and the average amount invested in these stocks was $14080 million. That figure was $9297 million in TSLA’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 64 bullish hedge fund positions. Compared to these stocks Tesla Inc. (NASDAQ:TSLA) is even less popular than TSM. Our overall hedge fund sentiment score for TSLA is 29.5. 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 TSLA 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 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. A small number of hedge funds were also right about betting on TSLA as the stock returned 16.4% since Q2 (through September 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
