The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Tesla Motors Inc (NASDAQ:TSLA), one of the top luxury car brands in the world, from the perspective of those successful funds.
Is Tesla Motors Inc (NASDAQ:TSLA) the right pick for your portfolio? Hedge funds are getting less optimistic. The number of long hedge fund positions retreated by 2 in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Spectra Energy Corp. (NYSE:SE), Eaton Corporation, PLC Ordinary Shares (NYSE:ETN), and Aon PLC (NYSE:AON) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Hedge fund activity in Tesla Motors Inc (NASDAQ:TSLA)
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 6% drop from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TSLA over the last 5 quarters, which shows sentiment peaking at the end of Q1 and mild declines since. Overall, the collection of successful hedge funds that we track owns just 4% of Tesla’s shares on September 30. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Masters Capital Management, led by Mike Masters, holds the largest position in Tesla Motors Inc (NASDAQ:TSLA). Masters Capital Management has a $265.2 million call position in the stock, comprising 5.3% of its 13F portfolio. Remaining members of the smart money with similar optimism include Jonathon Jacobson’s Highfields Capital Management and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Because Tesla Motors Inc (NASDAQ:TSLA) has encountered a decline in interest from the smart money, it’s easy to see that there exists a select few funds who sold off their positions entirely by the end of the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group dropped the largest investment of the 700 funds studied by Insider Monkey, valued at close to $214.5 million in call options. Anand Parekh’s fund, Alyeska Investment Group, also said goodbye to its stock, about $21.2 million worth.
Let’s also examine hedge fund activity in other stocks similar to Tesla Motors Inc (NASDAQ:TSLA). These stocks are Spectra Energy Corp. (NYSE:SE), Eaton Corporation, PLC Ordinary Shares (NYSE:ETN), Aon PLC (NYSE:AON), and Twenty-First Century Fox Inc (NASDAQ:FOXA). This group of stocks’ market values are similar to TSLA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SE | 25 | 446491 | 11 |
| ETN | 38 | 668498 | 5 |
| AON | 31 | 2565907 | 0 |
| FOXA | 48 | 3558064 | -1 |
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1.81 billion. That figure was $1.01 billion in TSLA’s case. Twenty-First Century Fox Inc (NASDAQ:FOXA) is the most popular stock in this table. On the other hand Spectra Energy Corp. (NYSE:SE) is the least popular one with only 25 bullish hedge fund positions. Tesla Motors Inc (NASDAQ:TSLA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FOXA might be a better candidate to consider taking a long position in.
Disclosure: None
