It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. 5.6% gain for SPY), with 53% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Facebook Inc (NASDAQ:FB).
Is Facebook Inc (NASDAQ:FB) undervalued? The best stock pickers are actually turning bullish. The number of long hedge fund bets in Facebook inched up by 13 recently. FB was in 193 hedge funds’ portfolios at the end of the second quarter of 2018. There were 180 hedge funds in our database with FB holdings at the end of the previous quarter. Facebook was actually the most popular stock among hedge funds at the end of the second quarter (see the list of 25 most popular stocks among hedge funds).
However, this doesn’t mean that all hedge funds were bullish on Facebook. This week at the Sohn San Francisco Conference Longtail Alpha’s Vineer Bhansali recommended shorting Facebook shares. He thinks tech stocks will underperform in a rising interest rate environment. You can check out the entire list of hedge fund recommendations at this conference on our site.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s analyze the fresh hedge fund action regarding Facebook Inc (NASDAQ:FB).
What have hedge funds been doing with Facebook Inc (NASDAQ:FB)?
The number of long hedge fund bets inched up by 13 recently. FB was in 193 hedge funds’ portfolios at the end of the second quarter of 2016. There were 180 hedge funds in our database with FB holdings at the end of the previous quarter.
Among these funds, AQR Capital Management held the most valuable stake in Facebook Inc (NASDAQ:FB), which was worth $1.7 billions at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $1477.2 millions worth of shares. Moreover, Immersion Capital, Taconic Capital, and Cat Rock Capital were also bullish on Facebook Inc (NASDAQ:FB), giving the stock large weights in their portfolios.
As aggregate interest increased, specific money managers were breaking ground themselves. Yost Capital Management, managed by Carson Yost, initiated the most outsized position in Facebook Inc (NASDAQ:FB). Yost Capital Management had $22.7 million invested in the company at the end of the quarter. Vinit Bodas’s Deccan Value Advisors also made a $138 million investment in the stock during the quarter. The other funds with new positions in the stock are John Shapiro’s Chieftain Capital, David Fear’s Thunderbird Partners, and Stanley Druckenmiller’s Duquesne Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Facebook Inc (NASDAQ:FB) but similarly valued. These stocks are Alibaba Group Holding Ltd (NYSE:BABA), Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), and Exxon Mobil Corporation (NYSE:XOM). All of these stocks’ market caps resemble FB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BABA | 117 | 15372745 | 6 |
| BRK-B | 81 | 20251117 | 3 |
| JPM | 92 | 7011260 | -8 |
| XOM | 50 | 2222523 | -7 |
As you can see these stocks had an average of 85 hedge funds with bullish positions and the average amount invested in these stocks was $11.2 billion. That figure was $25.3 billion in FB’s case. Alibaba Group Holding Ltd (NYSE:BABA) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 50 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and the low short interest in the stock, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
