Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Snap Inc. (NYSE:SNAP) an attractive investment now? The smart money is becoming hopeful. The number of bullish hedge fund positions rose by 14 lately. Our calculations also showed that SNAP isn’t 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 analyze the recent hedge fund action surrounding Snap Inc. (NYSE:SNAP).
What does the smart money think about Snap Inc. (NYSE:SNAP)?
At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 82% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in SNAP over the last 15 quarters. So, let’s find out 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, Tybourne Capital Management, managed by Eashwar Krishnan, holds the largest position in Snap Inc. (NYSE:SNAP). Tybourne Capital Management has a $350.4 million position in the stock, comprising 13.6% of its 13F portfolio. On Tybourne Capital Management’s heels is Slate Path Capital, led by David Greenspan, holding a $243.4 million position; 19.7% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish consist of Brandon Haley’s Holocene Advisors, and D. E. Shaw’s D E Shaw.
Consequently, key hedge funds were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, established the most valuable position in Snap Inc. (NYSE:SNAP). Holocene Advisors had $73.6 million invested in the company at the end of the quarter. Edmond M. Safra’s EMS Capital also initiated a $48.9 million position during the quarter. The following funds were also among the new SNAP investors: Alex Sacerdote’s Whale Rock Capital Management, Leon Shaulov’s Maplelane Capital, and Israel Englander’s Millennium Management.
Let’s now take a look at hedge fund activity in other stocks similar to Snap Inc. (NYSE:SNAP). These stocks are Maxim Integrated Products Inc. (NASDAQ:MXIM), Nasdaq, Inc. (NASDAQ:NDAQ), Arthur J. Gallagher & Co. (NYSE:AJG), and Regions Financial Corporation (NYSE:RF). This group of stocks’ market valuations are similar to SNAP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MXIM | 27 | 330978 | 3 |
| NDAQ | 16 | 83129 | -5 |
| AJG | 28 | 321793 | 6 |
| RF | 41 | 787954 | -1 |
| Average | 28 | 380964 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $1075 million in SNAP’s case. Regions Financial Corporation (NYSE:RF) is the most popular stock in this table. On the other hand Nasdaq, Inc. (NASDAQ:NDAQ) is the least popular one with only 16 bullish hedge fund positions. Snap Inc. (NYSE:SNAP) 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 (SPY) by more than 3 percentage points. Hedge funds were also right about betting on SNAP as the stock returned 8.8% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
