Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Uber Technologies, Inc. (NYSE:UBER) a worthy investment now? The smart money is becoming hopeful. The number of long hedge fund bets totaled 56 at the end of June. Our calculations also showed that UBER isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the latest hedge fund action regarding Uber Technologies, Inc. (NYSE:UBER).
What does smart money think about Uber Technologies, Inc. (NYSE:UBER)?
At the end of the second quarter, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 56 from the previous quarter. The graph below displays the number of hedge funds with bullish position in UBER over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Hillhouse Capital Management was the largest shareholder of Uber Technologies, Inc. (NYSE:UBER), with a stake worth $697.3 million reported as of the end of March. Trailing Hillhouse Capital Management was Viking Global, which amassed a stake valued at $620 million. Coatue Management, Glade Brook Capital Partners, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key money managers have been driving this bullishness. Hillhouse Capital Management, managed by Lei Zhang, established the biggest position in Uber Technologies, Inc. (NYSE:UBER). Hillhouse Capital Management had $697.3 million invested in the company at the end of the quarter. Andreas Halvorsen’s Viking Global also made a $620 million investment in the stock during the quarter. The other funds with brand new UBER positions are Philippe Laffont’s Coatue Management, Paul Hudson’s Glade Brook Capital Partners, and Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Uber Technologies, Inc. (NYSE:UBER) but similarly valued. We will take a look at Banco Santander, S.A. (NYSE:SAN), Ambev SA (NYSE:ABEV), Morgan Stanley (NYSE:MS), and Enbridge Inc (NYSE:ENB). This group of stocks’ market valuations resemble UBER’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SAN | 22 | 701860 | -1 |
| ABEV | 16 | 294772 | 3 |
| MS | 60 | 4267216 | 6 |
| ENB | 20 | 331452 | 0 |
| Average | 29.5 | 1398825 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1399 million. That figure was $5767 million in UBER’s case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 16 bullish hedge fund positions. Uber Technologies, Inc. (NYSE:UBER) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately UBER wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UBER were disappointed as the stock returned -34.3% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
