Hedge Funds Can’t Stop Buying Square, Inc. (SQ)

With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Square, Inc. (NYSE:SQ).

Square, Inc. (NYSE:SQ) has seen an increase in activity from the world’s largest hedge funds recently. Square, Inc. (NYSE:SQ) was in 94 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 92. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SQ ranked among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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.

Alex Sacerdote of Whale Rock Capital 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. Now let’s check out the new hedge fund action encompassing Square, Inc. (NYSE:SQ).

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

Heading into the third quarter of 2021, a total of 94 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. By comparison, 66 hedge funds held shares or bullish call options in SQ 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 Square, Inc. (NYSE:SQ) was held by ARK Investment Management, which reported holding $1960 million worth of stock at the end of June. It was followed by Lone Pine Capital with a $1393.4 million position. Other investors bullish on the company included Bares Capital Management, Coatue Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Kuvari Partners allocated the biggest weight to Square, Inc. (NYSE:SQ), around 23.15% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, dishing out 20.87 percent of its 13F equity portfolio to SQ.

Consequently, specific money managers have jumped into Square, Inc. (NYSE:SQ) headfirst. Whale Rock Capital Management, managed by Alex Sacerdote, established the biggest position in Square, Inc. (NYSE:SQ). Whale Rock Capital Management had $234.1 million invested in the company at the end of the quarter. Andreas Halvorsen’s Viking Global also initiated a $159.8 million position during the quarter. The following funds were also among the new SQ investors: Vikram Kumar’s Kuvari Partners, Glen Kacher’s Light Street Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s now take a look at hedge fund activity in other stocks similar to Square, Inc. (NYSE:SQ). We will take a look at Deere & Company (NYSE:DE), CVS Health Corporation (NYSE:CVS), Intuitive Surgical, Inc. (NASDAQ:ISRG), ServiceNow Inc (NYSE:NOW), Snap Inc. (NYSE:SNAP), Lockheed Martin Corporation (NYSE:LMT), and GlaxoSmithKline plc (NYSE:GSK). This group of stocks’ market caps resemble SQ’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 60 hedge funds with bullish positions and the average amount invested in these stocks was $3207 million. That figure was $10328 million in SQ’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Square, Inc. (NYSE:SQ) is more popular among hedge funds. Our overall hedge fund sentiment score for SQ is 87. 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 managed to beat the market by 6.9 percentage points. Hedge funds were also right about betting on SQ, though not to the same extent, as the stock returned 2.6% since the end of June (through September 20th) and outperformed the market as well.

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