How do we determine whether Facebook Inc (NASDAQ:FB) makes for a good investment at the moment? We know coronavirus is probably the #1 concern in your mind right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is actually a 3.3% probability that president Donald Trump will die from the new coronavirus (see the details). Coronavirus will probably cause a short recession and then things will get back to business as usual. That’s why we believe you should use this opportunity to identify the best stocks to invest for the future and add them to your portfolio at increasingly attractive prices. How do we find high quality stocks? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Facebook Inc (NASDAQ:FB) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that FB ranked #2 among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Chase Coleman of Tiger Global
We leave no stone unturned when looking for the next great investment idea. For example this gold mining company is acquiring gold mines in Americas at a fraction of the cost of drilling them, so we look into its viability. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. Now let’s take a look at the latest hedge fund action encompassing Facebook Inc (NASDAQ:FB).
How have hedgies been trading Facebook Inc (NASDAQ:FB)?
At Q4’s end, a total of 198 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FB over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Tiger Global Management was the largest shareholder of Facebook Inc (NASDAQ:FB), with a stake worth $1707.6 million reported as of the end of September. Trailing Tiger Global Management LLC was Citadel Investment Group, which amassed a stake valued at $1611.8 million. Eagle Capital Management, Viking Global, and AQR Capital Management 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 ADW Capital allocated the biggest weight to Facebook Inc (NASDAQ:FB), around 38.44% of its 13F portfolio. Thunderbird Partners is also relatively very bullish on the stock, earmarking 36.83 percent of its 13F equity portfolio to FB.
Consequently, key hedge funds were breaking ground themselves. Steadfast Capital Management, managed by Robert Pitts, initiated the largest position in Facebook Inc (NASDAQ:FB). Steadfast Capital Management had $219.5 million invested in the company at the end of the quarter. Michael Pausic’s Foxhaven Asset Management also made a $153.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeffrey Altman’s Owl Creek Asset Management, David Gallo’s Valinor Management, and Michael Rockefeller and Karl Kroeker’s Woodline Partners.
Let’s go over hedge fund activity in other stocks similar to Facebook Inc (NASDAQ:FB). We will take a look at Alibaba Group Holding Limited (NYSE:BABA), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), and Johnson & Johnson (NYSE:JNJ). This group of stocks’ market valuations are similar to FB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BABA | 170 | 22442887 | 10 |
| JPM | 98 | 13134286 | 4 |
| V | 143 | 16812443 | -4 |
| JNJ | 85 | 8257996 | 1 |
| Average | 124 | 15161903 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 124 hedge funds with bullish positions and the average amount invested in these stocks was $15162 million. That figure was $24395 million in FB’s case. Alibaba Group Holding Limited (NYSE:BABA) is the most popular stock in this table. On the other hand Johnson & Johnson (NYSE:JNJ) is the least popular one with only 85 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately FB wasn’t nearly as successful as these 20 stocks and hedge funds that were betting on FB were disappointed as the stock returned -4.3% during the first two months of 2020 (through March 2nd) 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
