Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about Square, Inc. (NYSE:SQ)?
Square, Inc. (NYSE:SQ) has experienced an increase in enthusiasm from smart money in recent months. Our calculations also showed that SQ isn’t 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.
At the moment there are a multitude of formulas investors employ to grade publicly traded companies. A pair of the best formulas are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top investment managers can outpace their index-focused peers by a significant margin (see the details here).
Andreas Halvorsen of Viking Global
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s analyze the latest hedge fund action regarding Square, Inc. (NYSE:SQ).
What have hedge funds been doing with Square, Inc. (NYSE:SQ)?
At the end of the fourth quarter, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in SQ a year ago. So, let’s review 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 Viking Global, which reported holding $628.4 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $550.4 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 Clearfield Capital allocated the biggest weight to Square, Inc. (NYSE:SQ), around 12.37% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 9.1 percent of its 13F equity portfolio to SQ.
As one would reasonably expect, specific money managers have been driving this bullishness. HMI Capital, managed by Mick Hellman, established the most outsized position in Square, Inc. (NYSE:SQ). HMI Capital had $85.6 million invested in the company at the end of the quarter. Philip Hilal’s Clearfield Capital also made a $28 million investment in the stock during the quarter. The other funds with brand new SQ positions are Renaissance Technologies, Gavin Baker’s Atreides Management, and John Overdeck and David Siegel’s Two Sigma Advisors.
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 TD Ameritrade Holding Corp. (NYSE:AMTD), Sun Life Financial Inc. (NYSE:SLF), Discover Financial Services (NYSE:DFS), and Agilent Technologies Inc. (NYSE:A). This group of stocks’ market values match SQ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMTD | 50 | 1411932 | 19 |
| SLF | 16 | 132762 | 3 |
| DFS | 39 | 830938 | -2 |
| A | 46 | 2470187 | 5 |
| Average | 37.75 | 1211455 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $1211 million. That figure was $2387 million in SQ’s case. TD Ameritrade Holding Corp. (NYSE:AMTD) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Square, Inc. (NYSE:SQ) 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 lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on SQ as the stock returned 5.1% so far in Q1 (through March 9th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
