Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Alibaba Group Holding Limited (NYSE:BABA).
Alibaba Group Holding Limited (NYSE:BABA) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. BABA was in 117 hedge funds’ portfolios at the end of March. There were 113 hedge funds in our database with BABA holdings at the end of the previous quarter. Our calculations also showed that BABA ranks 7th among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s check out the new hedge fund action regarding Alibaba Group Holding Limited (NYSE:BABA).
What does the smart money think about Alibaba Group Holding Limited (NYSE:BABA)?
Heading into the second quarter of 2019, a total of 117 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BABA over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the number one position in Alibaba Group Holding Limited (NYSE:BABA). Fisher Asset Management has a $1.5741 billion position in the stock, comprising 2.1% of its 13F portfolio. On Fisher Asset Management’s heels is Citadel Investment Group, led by Ken Griffin, holding a $1.112 billion call position; 0.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish consist of Andreas Halvorsen’s Viking Global, Stephen Mandel’s Lone Pine Capital and Chase Coleman’s Tiger Global Management.
As one would reasonably expect, key money managers were leading the bulls’ herd. Melvin Capital Management, managed by Gabriel Plotkin, initiated the biggest position in Alibaba Group Holding Limited (NYSE:BABA). Melvin Capital Management had $320.3 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also made a $142.3 million investment in the stock during the quarter. The other funds with new positions in the stock are David Tepper’s Appaloosa Management LP, Josh Donfeld and David Rogers’s Castle Hook Partners, and James Crichton’s Hitchwood Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Alibaba Group Holding Limited (NYSE:BABA) but similarly valued. These stocks are Johnson & Johnson (NYSE:JNJ), Visa Inc (NYSE:V), Exxon Mobil Corporation (NYSE:XOM), and JPMorgan Chase & Co. (NYSE:JPM). This group of stocks’ market values are similar to BABA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JNJ | 69 | 5801877 | -4 |
| V | 124 | 13224012 | -4 |
| XOM | 49 | 1310955 | -4 |
| JPM | 100 | 10348850 | -1 |
| Average | 85.5 | 7671424 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 85.5 hedge funds with bullish positions and the average amount invested in these stocks was $7671 million. That figure was $13937 million in BABA’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 49 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (IVV) by more than 3 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 -17.2% during the same period and underperformed the market. Like most investors hedge funds betting on BABA weren’t expecting a deterioration in China trade negotiations. Nevertheless a diversified portfolio of top 20 hedge fund stocks still managed to generate positive returns in Q2 whereas the market lost value.
Disclosure: None. This article was originally published at Insider Monkey.
