Looking At The Long-Term Performance of Hedge Funds’ Popular Picks from 2015

If you want to have a glimpse at how expert investors play the stock market, you can do so by looking at the long-term performance of hedge funds’ popular picks from 2015.

Hedge funds may be right or wrong in the short term about a particular stock or sector. Predicting short term share price action using fundamental analysis is extremely difficult, if not impossible. Heck, even the most experienced day traders and investors have plenty of bust moments as well. You may view hedge funds as not worth monitoring, since their returns have been underperforming the market in recent years. But we have to consider that this underperformance is because these funds hedge (hence the name) and charge huge fees. Hedge funds are also like many other companies in that they bundle products (in this case, stock picks) together and sell them to customers (investors) as a package deal. That means you get their 73rd-best pick along with their best pick, and who wants to pay exorbitant fees for a fund’s 73rd-best idea when you could instead invest in only their best ideas?

Investors can outperform the market by imitating their consensus picks, because believe it or not, hedge funds are usually good at picking stocks. That’s what we do at Insider Monkey. We track over 700 of the most successful hedge funds ever in our database and identify only their best stock picks. Our flagship strategy has gained 44% since February 2016 and our stock picks released in the middle of February 2017 gained over 5 percentage points in the three months that followed. Our latest stock picks were released last month, which investors can gain access to by becoming a subscriber to Insider Monkey’s premium newsletters.

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In this article, we’ll look at the long-term performance of hedge funds’ most popular stock picks from early-2015. Unsurprisingly, the results are strong. The top 5 most popular stocks among hedge funds have had an average return of 33.82% over the last two years, compared with a gain of only 14.12% for the SPDR S&P 500 ETF Trust.

The stocks’ performance was calculated using the May 31, 2015 to May 31, 2017 period. The results take into account the significant stock value decline of one of those companies, as well as two companies’ meteoric outperformance on the market. These consensus stock picks are based on the Q1 2015 13F filings of hedge funds, released by mid-May 2015 (holdings as of March 31, 2015). Thus, readers would’ve had a nearly two-week-long window after our article was released (May 19, 2015) to buy those stocks.

Insider Monkey provides a more detailed discussion on each top pick over the next few pages, as we continue looking at the long-term performance of hedge funds’ popular picks from 2015. Those picks were Allergan plc Ordinary Shares (NYSE:AGN), Alphabet Inc (NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL), Citigroup Inc (NYSE:C), and Facebook Inc (NASDAQ:FB), and they are ranked on this list according to the number of hedge funds invested in these companies as of March 31, 2015.

5. Alphabet Inc (NASDAQ:GOOGL)

Internet search giant Google, now restructured under the umbrella holding company Alphabet Inc (NASDAQ:GOOGL), was a stock held by hundreds of hedge funds at the end of the first quarter of 2015. At that time, 121 funds reported holding around $7.36 billion worth of Google’s class A stock, while 108 investors disclosed long positions worth $6.88 billion in its class C stock (some funds owned both classes of shares).

Those investors have been rewarded handsomely, with gains of 79.72% over the two-year period, from $549.21 on May 31, 2015, to $987.09 two years later. The tech giant’s stock even hit $1,000 in early June-2017, before sinking to around $950 after the company was hit with a billion-euro antitrust fine, although that’s probably not a big deal to the satisfied investors who bought in two or more years ago. Hedge funds are as bullish as ever on Google, with 135 funds long its class A shares and 117 long its class C shares at the end of March, 2017.

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4. Citigroup Inc (NYSE:C)

In the first quarter of 2015, the number of hedge funds that disclosed holding shares in Citigroup fell to 126 from 137, while the aggregate value of the stakes held by those funds inched up to $11.63 billion from $11.27 billion. On May 31, 2015, Citibank’s stock was worth $54.45, and the company was embroiled in a series of probes over questionable practices. Two years later, Citigroup’s stock price had risen to $60.54, signifying an 11.18% increase that, while good, isn’t exactly exciting. Citigroup was down to having 112 hedge funds in our database as shareholders as of March 31, 2017, with them holding $9.81 billion in shares.

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3. Facebook Inc (NASDAQ:FB)

Facebook Inc (NASDAQ:FB), now the most popular stock among hedge funds as of the end of the first quarter of 2017, finished the first quarter of 2015 with a total of 129 funds owning $7.09 billion worth of its shares. That significant amount of hedge fund support reflected the social media giant’s great turnaround from its botched IPO less than three years earlier. Facebook has been a massive performer over the past two years, rising from $80.29 on May 31, 2015, to $151.46 two years later, a whopping 88.64% increase. No wonder Facebook is now trusted by more hedge funds, 155 of them, than any other stock, and own $18.49 billion in Facebook shares. Looking at the long-term performance of hedge funds’ popular picks from 2015, Facebook outperformed all the companies on this list.

2. Apple Inc. (NASDAQ:AAPL)

Back in the first quarter of 2015, Apple Inc. (NASDAQ:AAPL) slipped from the top spot among hedge funds, settling for second place with 150 investors that held a total of $21.52 billion worth of stock. The tech giant’s stock price rose from $130.54 on May 31, 2015, to $152.76 on May 31, 2017, growth of 17.02%, which is decent on its own, but has lagged behind some of the other tech giants. As of the end of the first quarter of 2017, just 113 hedge funds were invested in Apple, putting it in eighth place among hedge funds’ favorite stocks. However, the value of hedge funds’ holdings in the iPhone maker, at $30.91 billion, is the biggest among the five companies on this list.

1. Allergan plc Ordinary Shares (NYSE:AGN)

On May 15, 2015, around the time that most hedge funds reported their positions in Actavis, the company completed its acquisition of Allergan plc Ordinary Shares (NYSE:AGN). At the time, Actavis was the top pick of hedge funds, with 157 funds reporting Actavis holdings valued at $21.97 billion. Actavis then adopted Allergan’s name a month after the deal’s closure. However, the company’s stock price fell by 27.63% over the two-year period, reflective of the troubles of the pharmaceutical industry in general. Shares fell from $309.16 on May 31, 2015, to $223.75 two years later. Unsurprisingly, only 84 hedge funds remain invested in Allergan, with $6.48 billion in holdings. Looking at the long-term performance of hedge funds’ popular picks from 2015, Allergan was a rare miss for hedge funds, and the only stock on this list whose value fell.

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Disclosure: None