Hedge Funds’ Big September Winners As Monthly Winning Streak Rises

The smart money is back. After rallying 1.3% in August, the HFRI Equity Hedge Index, which tracks the performance of many top equity hedge funds, advanced by 1.5% in September.

In this article, we examine some of the smart money’s favorite stocks, Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Delta Air Lines, Inc. (NYSE:DAL), Paypal Holdings Inc (NASDAQ:PYPL), and Alibaba Group Holding Ltd (NYSE:BABA), that helped the group of investors to collectively achieve the strong results (and beat the market during the time frame too).

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details here).

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#5 Alibaba Group Holding Ltd (NYSE:BABA)

– Number of Hedge Fund Holders (as of June 30): 69
– Total Value of Hedge Fund Holdings (as of June 30): $5.52 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 2.80%

What a difference eight months can make. In February, many investors didn’t like Alibaba Group Holding Ltd (NYSE:BABA) due to its perceived growth rate troubles and the weak Chinese economy. Now, due to more optimism in the Chinese internet sector and several solid earnings reports, Alibaba shares are in the triple digits and are trading close to their 52-week high. Alibaba’s strong performance in September, during which the stock rallied to $105.79 from $97.19 per share, also helped the performance of investors, which include 69 funds from our database. Andreas Halvorsen’s Viking Global was one fund that held over 3.2 million shares of Alibaba Group Holding Ltd (NYSE:BABA) at the end of June.

#4 Paypal Holdings Inc (NASDAQ:PYPL)

– Number of Hedge Fund Holders (as of June 30): 84
– Total Value of Hedge Fund Holdings (as of June 30): $5.43 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 12.30%

Who says that spin-offs can’t deliver any value anymore? Paypal Holdings Inc (NASDAQ:PYPL)’s shares surged 10% in September. According to our data, 84 funds that we track, including Carl Icahn’s Icahn Capital LP, held shares in the online finance giant at the end of June. With fintech still in its infancy, PayPal has considerable growth and acquisition opportunities ahead. Analysts have an average price target of $44.26 per share, giving the stock another 10% upside from current levels.

#3 Delta Air Lines, Inc. (NYSE:DAL)

– Number of Hedge Fund Holders (as of June 30): 94
– Total Value of Hedge Fund Holdings (as of June 30): $4.66 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 16.60%

Although crude prices have surged due to OPEC’s tentative decision to cut production to 32.5-33 million barrels per day, down from the current 33.4 million barrels per day, Delta Air Lines, Inc. (NYSE:DAL) have shown remarkable strength. Shares of the airline, whose stock has historically been negatively affected by higher crude prices, rallied 7.1% in September versus the United States Oil Fund LP’s 5.5% advance during the same time frame. One big reason for the solid performance is Delta’s cheap valuation with a forward P/E of 6.97. Expectations for Delta have also risen as various industry indicators have shown strong demand. Delta’s CEO Ed Bastian recently said, that a three day period in July ‘set all-time records in terms of volume of traffic and volume of passenger flows’ and that the company ‘had the strongest summer in [its] history’.

#2 Apple Inc. (NASDAQ:AAPL)

– Number of Hedge Fund Holders (as of June 30): 116
– Total Value of Hedge Fund Holdings (as of June 30): $10.68 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 2.00%

Apple Inc. (NASDAQ:AAPL)’s equity was a godsend to many hedge funds as shares of the tech company gained 6.5% in September. Although the performance of Apple’s stock hasn’t historically been lights-out around product launches since the iPhone and iPhone Plus’ early days, this September was an exception. Demand for the iPhone 7 and 7 plus has been stronger-than-expected and sentiment around the tech company has improved substantially. With 2017 approaching, some traders are also hoping that the government might allow companies to repatriate their overseas profits at more favorable tax rates. The repatriation might lead to more buybacks, which is generally a good thing for shareholders.

#1 Amazon.com, Inc. (NASDAQ:AMZN)

– Number of Hedge Fund Holders (as of June 30): 145
– Total Value of Hedge Fund Holdings (as of June 30): $19.82 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 5.90%

Sometimes riding secular trends can be more profitable than buying shares of solidly-profitable companies. Shares of Amazon.com, Inc. (NASDAQ:AMZN), which isn’t exactly rolling in money given its P/E of 209, have surged by 8.8% last month as long-term investors buy the company for its dominance in the cloud market and in the e-commerce space. In addition, Amazon.com’s other initiatives, such as those involving logistics and artificial intelligence, could also pay off in the long run. The smart money certainly thinks so. According to our data, 145 top funds owned shares of Amazon.com, Inc. (NASDAQ:AMZN) at the end of the second quarter, up by 12 from the previous quarter.

Disclosure: none