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.
Keeping this in mind, let’s take a look at how hedge funds were trading Tesla Inc. (NASDAQ:TSLA) before the coronavirus bear market.
Tesla Inc. (NASDAQ:TSLA) investors should be aware of an increase in hedge fund interest recently. Our calculations also showed that TSLA 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.
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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
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 we’re going to view the new hedge fund action encompassing Tesla Inc. (NASDAQ:TSLA).
What have hedge funds been doing with Tesla Inc. (NASDAQ:TSLA)?
At the end of the fourth quarter, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 59% from the previous quarter. On the other hand, there were a total of 47 hedge funds with a bullish position in TSLA a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the number one call position in Tesla Inc. (NASDAQ:TSLA), worth close to $1.9538 billion, accounting for 0.8% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $1.6474 billion position; 1.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions encompass D. E. Shaw’s D E Shaw, and Nancy Zevenbergen’s Zevenbergen Capital Investments. In terms of the portfolio weights assigned to each position Tao Capital allocated the biggest weight to Tesla Inc. (NASDAQ:TSLA), around 21.03% of its 13F portfolio. Ariose Capital is also relatively very bullish on the stock, dishing out 14.09 percent of its 13F equity portfolio to TSLA.
As industrywide interest jumped, specific money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, assembled the most valuable position in Tesla Inc. (NASDAQ:TSLA). D E Shaw had $500.7 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also initiated a $137.6 million position during the quarter. The following funds were also among the new TSLA investors: John Hurley’s Cavalry Asset Management, Nicholas J. Pritzker’s Tao Capital, and James Crichton’s Hitchwood Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Tesla Inc. (NASDAQ:TSLA). These stocks are CNOOC Limited (NYSE:CEO), The Estee Lauder Companies Inc (NYSE:EL), Automatic Data Processing, Inc. (NASDAQ:ADP), and Becton, Dickinson and Company (NYSE:BDX). All of these stocks’ market caps match TSLA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CEO | 14 | 235359 | -1 |
| EL | 50 | 1697103 | 2 |
| ADP | 51 | 2821795 | -5 |
| BDX | 50 | 1447307 | -1 |
| Average | 41.25 | 1550391 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $1550 million. That figure was $3044 million in TSLA’s case. Automatic Data Processing, Inc. (NASDAQ:ADP) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 14 bullish hedge fund positions. Tesla Inc. (NASDAQ:TSLA) is not the most popular stock in this group but hedge fund interest is still above average. 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 beat the market by 1.9 percentage points. Hedge funds were also right about betting on TSLA as the stock returned 45.3% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
