It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Electronic Arts Inc. (NASDAQ:EA).
Is Electronic Arts Inc. (NASDAQ:EA) worth your attention right now? Money managers are taking an optimistic view. The number of bullish hedge fund positions rose by 4 in recent months. Our calculations also showed that EA isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 take a gander at the new hedge fund action regarding Electronic Arts Inc. (NASDAQ:EA).
How have hedgies been trading Electronic Arts Inc. (NASDAQ:EA)?
Heading into the second quarter of 2019, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. By comparison, 61 hedge funds held shares or bullish call options in EA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Electronic Arts Inc. (NASDAQ:EA), which was worth $338.3 million at the end of the first quarter. On the second spot was SRS Investment Management which amassed $258.9 million worth of shares. Moreover, Citadel Investment Group, Coatue Management, and Melvin Capital Management were also bullish on Electronic Arts Inc. (NASDAQ:EA), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, some big names have been driving this bullishness. SRS Investment Management, managed by Karthik Sarma, established the biggest position in Electronic Arts Inc. (NASDAQ:EA). SRS Investment Management had $258.9 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $76.9 million position during the quarter. The following funds were also among the new EA investors: Louis Bacon’s Moore Global Investments, Alexander Mitchell’s Scopus Asset Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Electronic Arts Inc. (NASDAQ:EA) but similarly valued. We will take a look at O’Reilly Automotive Inc (NASDAQ:ORLY), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), and Public Service Enterprise Group Incorporated (NYSE:PEG). This group of stocks’ market valuations are closest to EA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORLY | 43 | 2015940 | -2 |
| ERIC | 20 | 425457 | -5 |
| ALXN | 35 | 2311990 | -6 |
| PEG | 28 | 1019022 | -2 |
| Average | 31.5 | 1443102 | -3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1443 million. That figure was $2743 million in EA’s case. O’Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Electronic Arts Inc. (NASDAQ:EA) is more popular among hedge funds. 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. Unfortunately EA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EA were disappointed as the stock returned -9.3% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
