Is Netflix, Inc. (NFLX) Going to Burn These Hedge Funds?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually, their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Netflix, Inc. (NASDAQ:NFLX).

Netflix, Inc. (NASDAQ:NFLX) was in 57 hedge funds’ portfolios at the end of September. NFLX investors should be aware of an increase in enthusiasm from smart money of late. There were 50 hedge funds in our database with NFLX positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as E I Du Pont De Nemours And Co (NYSE:DD), The Bank of New York Mellon Corporation (NYSE:BK), and McKesson Corporation (NYSE:MCK) to gather more data points.

In the eyes of most investors, hedge funds are perceived as slow, outdated financial tools of yesteryear. While there are over 8000 funds with their doors open today, We hone in on the masters of this group, about 700 funds. Most estimates calculate that this group of people preside over most of the smart money’s total asset base, and by watching their highest performing picks, Insider Monkey has deciphered a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Keeping this in mind, we’re going to take a glance at the key action encompassing Netflix, Inc. (NASDAQ:NFLX).

What have hedge funds been doing with Netflix, Inc. (NASDAQ:NFLX)?

At Q3’s end, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, up by 14% from the previous quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chase Coleman’s Tiger Global Management LLC has the number one position in Netflix, Inc. (NASDAQ:NFLX), worth close to $1.86 billion, amounting to 22.9% of its total 13F portfolio. On Tiger Global Management LLC’s heels is Karthik Sarma of SRS Investment Management, with a $1.22 billion position; the fund has 40.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish comprise Philippe Laffont’s Coatue Management, Andreas Halvorsen’s Viking Global and David Goel and Paul Ferri’s Matrix Capital Management.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Viking Global, managed by Andreas Halvorsen, assembled the most valuable position in Netflix, Inc. (NASDAQ:NFLX). The fund reportedly had $466.4 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also initiated a $52.7 million position during the quarter. The other funds with brand new NFLX positions are Jim Simons’s Renaissance Technologies, Pasco Alfaro / Richard Tumure’s Miura Global Management, and George Soros’s Soros Fund Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Netflix, Inc. (NASDAQ:NFLX) but similarly valued. We will take a look at E I Du Pont De Nemours And Co (NYSE:DD), The Bank of New York Mellon Corporation (NYSE:BK), McKesson Corporation (NYSE:MCK), and Carnival plc (ADR) (NYSE:CUK). This group of stocks’ market caps resemble NFLX’s market cap.

As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was a little over $3 billion. That figure was $6.51 million in NFLX’s case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table, while Carnival plc (ADR) (NYSE:CUK) is at the other end of the specter with only 8 bullish hedge fund positions. Netflix, Inc. (NASDAQ:NFLX) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MCK might be a better candidate to consider a long position.