Most Popular Stocks Among Hedge Funds: Part 1 – Tech Giants in Spotlight

The last 12 months have been marked by a series of events that adversely affected the performance of hedge funds and other institutional investors. Amid turmoil in China, a selloff in the U.S stock markets, and plunging commodity prices, the returns of smart money investors took a hit and many top funds closed 2015 with losses. According to Hedge Fund Research, the HFRI Equity Hedge (Total) Index is down by 4.08% over the last 12 months, while the HFRI Event-Driven (Total) Index has declined by 5.29%. Nevertheless, with the latest round of 13F filings completed, we have analyzed the equity portfolios of more than 700 funds from our database and compiled a list of the most popular stocks among them as of the end of December. The list is heavily dominated by tech stocks, as many companies attracted more investors in the final three months of last year. In this article we are going to discuss five companies that ranked at the top of the list. Surprisingly, Apple Inc. (NASDAQ:AAPL), which ranked as the second-most popular stock at the end of September and has ranked in the top-two for several quarters in a row, slid to the seventh spot, even though the number of funds with long positions in Apple was unchanged.

The reason we follow the activity of smart money investors is because we believe that imitating some of the picks that they are collectively bullish on can help an everyday investor outperform the market. The key is to focus on small-cap stocks, which are usually less followed and have a higher chance of being undervalued (see more details here).

Let’s start our discussion with Allergan plc Ordinary Shares (NYSE:AGN), which maintained its position as the most popular stock among the funds we track amid a boost in popularity registered during the last three months of 2015. The number of funds with long positions, among those we track, went up to 159 from 151, while the aggregate value of their holdings surged to $22.22 billion from $20.47 billion. The increase in popularity came amid a 16% growth registered by the stock during the last three months of 2015.

In November, Pfizer Inc. (NYSE:PFE) agreed to acquire Allergan plc Ordinary Shares (NYSE:AGN) in a $160 billion deal that sparked a lot of discussions regarding the moral side of tax inversion deals. Nevertheless, if the deal is completed, it will create the largest drugmaker in the world and allow Pfizer to focus on its portfolio of branded products and dispose of drugs facing generic competition, even though its management previously said that it would delay this move for two years. Among the investors we track, Andreas Halvorsen‘s Viking Global Management and John Paulson’s Paulson & Co. trimmed their positions in Allergan plc Ordinary Shares (NYSE:AGN) to 5.98 million shares and 5.53 million shares, respectively, while Dan Loeb’s Third Point raised its holding to 5.40 million shares.

One of the top performing stocks last year was Alphabet Inc (NASDAQ:GOOGL) and the company’s strong results attracted the attention of more investors from our database. The popularity of both of Alphabet’s classes of stock increased considerably, as at the end of December, 154 funds held shares of the company’s class A stock and 142 funds disclosed owning class C shares, huge increases from 129 funds and 119 funds, respectively, a quarter earlier. This places Alphabet’s class A stock on the second spot in our list, while the class C stock ranked as the fourth-most popular. In addition, the aggregate value of investors’ class A holdings surged to $15.10 billion from $11.30 billion, while the total value of positions in Alphabet Inc (NASDAQ:GOOGL)’s class C stock went up to $14.22 billion from $10.18 billion.

Amid a growth in advertising revenue, Alphabet Inc (NASDAQ:GOOGL) registered an increase in revenue to $21.33 billion in the fourth quarter, topping the estimates of $20.77 billion, while its quarterly earnings of $8.67 per class A share were above the expectations of $8.10. Viking Global Management cut its exposure to Alphabet’s class A stock during the fourth quarter, reporting ownership of more than 1.85 million class A shares in its latest 13F filing. At the same time, Viking inched up its Alphabet Inc (NASDAQ:GOOGL) class C holding by 2% on the quarter to 1.15 million shares.

Another stock that became more popular among the funds we track during the fourth quarter was Facebook Inc (NASDAQ:FB), in which 145 funds from our database reported stakes worth $10.71 billion in aggregate as of the end of December, which compares to 128 funds holding $8.96 billion worth of stock a quarter earlier. Facebook’s stock was also a star performer last year, climbing by more than 34% as the company delivered results above expectations and showed substantial growth in monthly active users, as well as solid growth in the mobile segment.

For the fourth quarter of 2015, the social media giant posted EPS of $0.79 on revenue of $5.84 billion, which was better than the highest estimates of $0.75 in EPS on $5.67 billion in revenue. Facebook’s Monthly Active Users metric amounted to 1.59 billion in the fourth quarter, versus expectations of 1.58 billion, while the mobile segment accounted for more than 90% of the monthly active users and the mobile ad revenue accounted for 80% of the total ad revenue of $5.64 billion. Among the investors we track, Stephen Mandel‘s Lone Pine Capital is one of the largest shareholders of Facebook, holding 9.79 million shares, according to its latest 13F filing.

Amazon.com, Inc. (NASDAQ:AMZN) is the fifth-most popular company among the funds in our database and is another stock that rewarded investors with returns north of 100% last year. Overall, the number of funds bullish on Amazon climbed by 27 to 140 during the last three months of 2015, while the aggregate value of their holdings surged to $17.30 billion from $14.98 billion. Viking Global reduced its stake in Amazon by 450,318 shares to 2.57 million shares, while Lone Pine Capital added 270,250 shares to life its holding to 2.21 million shares.

Even though Amazon.com, Inc. (NASDAQ:AMZN) missed both the top and bottom line estimates last quarter, it still reported its third profitable quarter in a row with EPS of $1.00 on revenue of $35.75 billion, versus estimates of $1.56 and $35.93 billion respectively. In addition, Amazon is showing solid growth in its Web Services segment, which posted revenue of $2.41 billion, up by 69% on the year. Despite the earnings and revenue miss, analysts are still bullish on the stock and think that the company has still room to expand its margins. The stock has a consensus price target of $726.22, which represents upside potential of 36%.

Finally, the number of funds with long positions in Microsoft Corporation (NASDAQ:MSFT) also increased by 27 to 140, while the aggregate value of those holdings grew to $23.42 billion from $19.31 billion, amid a 28% jump registered by the stock during the fourth quarter. Among the funds we track, Jeff Ubben’s ValueAct Capital unloaded 18.65 million shares of Microsoft Corporation (NASDAQ:MSFT) during the quarter, reporting 56.62 million shares held as of the end of December.

Microsoft CEO Satya Nadella is doing a great job transforming Microsoft Corporation (NASDAQ:MSFT)’s business model and moving the company away from its reliance on the PC amid a declining market, and towards subscription-based software and cloud services. The company’s latest financial results topped expectations, but investors were especially pleased to see 5% annual growth in Intelligent Cloud revenue, to $6.34 billion in the fourth quarter, which included a 140% increase in Azure revenue. As the PC market continues to decline, it still accounts for a significant part of Microsoft’s revenue so all eyes will be focused on the company’s cloud segment to see if it can pick up the slack.

Disclosure: None