Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:
“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”
“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.
It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.
The #16 most popular stock among the 743 hedge funds tracked by Insider Monkey was Paypal Holdings Inc (NASDAQ:PYPL). PayPal was also the 9th most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).
We have to warn you against indiscriminately imitating hedge funds’ all stock picks. Hedge funds’ top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds’ top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund’s 35th best idea doesn’t give you the same return as investing in a hedge fund’s best idea.
Dan Loeb of Third Point
We’re going to view the latest hedge fund action regarding Paypal Holdings Inc (NASDAQ:PYPL).
How have hedgies been trading Paypal Holdings Inc (NASDAQ:PYPL)?
Heading into the second quarter of 2019, a total of 93 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. By comparison, 84 hedge funds held shares or bullish call options in PYPL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Third Point held the most valuable stake in Paypal Holdings Inc (NASDAQ:PYPL), which was worth $363.4 million at the end of the first quarter. On the second spot was Coatue Management which amassed $339 million worth of shares. Moreover, Citadel Investment Group, Whale Rock Capital Management, and D E Shaw were also bullish on Paypal Holdings Inc (NASDAQ:PYPL), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Paypal Holdings Inc (NASDAQ:PYPL) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies who were dropping their full holdings last quarter. At the top of the heap, Stephen Mandel’s Lone Pine Capital dropped the largest investment of the 700 funds monitored by Insider Monkey, totaling an estimated $484.6 million in call options. Steve Cohen’s fund, Point72 Asset Management, also cut its call options, about $174 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 10 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Paypal Holdings Inc (NASDAQ:PYPL) but similarly valued. These stocks are DowDuPont Inc. (NYSE:DWDP), PetroChina Company Limited (NYSE:PTR), 3M Company (NYSE:MMM), and AbbVie Inc (NYSE:ABBV). This group of stocks’ market values are similar to PYPL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DWDP | 61 | 1910098 | -6 |
| PTR | 12 | 124953 | -2 |
| MMM | 43 | 441353 | 7 |
| ABBV | 47 | 3858080 | 1 |
| Average | 40.75 | 1583621 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1584 million. That figure was $3610 million in PYPL’s case. DowDuPont Inc. (NYSE:DWDP) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Paypal Holdings Inc (NASDAQ:PYPL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Hedge funds were also right about betting on PYPL as the stock returned 10.2% during the same period and outperformed the market by an even larger margin. PayPal also returned more than 36% year-to-date. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
