In this article you are going to find out whether hedge funds think Alibaba Group Holding Limited (NYSE:BABA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Alibaba Group Holding Limited (NYSE:BABA) a healthy stock for your portfolio? Hedge funds were taking an optimistic view. The number of long hedge fund positions improved by 12 recently. Alibaba Group Holding Limited (NYSE:BABA) was in 166 hedge funds’ portfolios at the end of September. The all time high for this statistics is 170. Our calculations also showed that BABA ranks 4th among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chase Coleman of Tiger Global
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s go over the fresh hedge fund action surrounding Alibaba Group Holding Limited (NYSE:BABA).
How are hedge funds trading Alibaba Group Holding Limited (NYSE:BABA)?
At the end of September, a total of 166 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BABA over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Alibaba Group Holding Limited (NYSE:BABA) was held by Fisher Asset Management, which reported holding $3967.3 million worth of stock at the end of September. It was followed by GQG Partners with a $2820.6 million position. Other investors bullish on the company included Citadel Investment Group, Tiger Global Management LLC, and Hillhouse Capital Management. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 44.28% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, designating 44.12 percent of its 13F equity portfolio to BABA.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Whale Rock Capital Management, managed by Alex Sacerdote, created the biggest position in Alibaba Group Holding Limited (NYSE:BABA). Whale Rock Capital Management had $409 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management also initiated a $166 million position during the quarter. The other funds with brand new BABA positions are Farhad Nanji and Michael DeMichele’s MFN Partners, Rob Citrone’s Discovery Capital Management, and Alexander Mitchell’s Scopus Asset Management.
Let’s check out hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). These stocks are Facebook Inc (NASDAQ:FB), Visa Inc (NYSE:V), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Berkshire Hathaway Inc. (NYSE:BRK-B), Tesla Inc. (NASDAQ:TSLA), Walmart Inc. (NYSE:WMT), and Johnson & Johnson (NYSE:JNJ). All of these stocks’ market caps resemble BABA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FB | 230 | 29337247 | 20 |
| V | 160 | 18651052 | 6 |
| TSM | 67 | 7971678 | 9 |
| BRK-B | 109 | 19555477 | 2 |
| TSLA | 67 | 8176828 | 4 |
| WMT | 69 | 5492521 | 9 |
| JNJ | 82 | 4882436 | -12 |
| Average | 112 | 13438177 | 5.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 112 hedge funds with bullish positions and the average amount invested in these stocks was $13438 million. That figure was $28834 million in BABA’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 67 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) is not the most popular stock in this group but that’s only because of Facebook. Our overall hedge fund sentiment score for BABA is 86.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 28.1% in 2020 through November 23rd and beat the market again by 15.4 percentage points. Unfortunately BABA wasn’t nearly as successful as these 20 stocks and hedge funds that were betting on BABA were disappointed as the stock returned -8.1% since the end of September (through 11/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the more diversified list of top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Alibaba Group Holding Limited (NYSE:BABA)
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Disclosure: None. This article was originally published at Insider Monkey.
