Most Popular Tech Stocks Among Hedge Funds

After they saw the value of their holdings plummet quite significantly during the third quarter, the last quarter of 2015 came as a respite for most equity investors. During that period, most stocks rebounded and managed to recoup some of the losses they incurred during the third quarter. However, there was one particular sector whose stocks not only bounced back, but some of which even went on to create new highs during the fourth quarter. That sector was the technology sector. The relative outperformance of the tech sector can be gauged from the fact that while the S&P 500 was up by 6.4% during the fourth quarter, the S&P North American Technology Sector Index returned 10%. Hence, it’s not a coincidence that smart money lapped up tech stocks in droves during the fourth quarter, with five of the ten most popular stocks among the more than 730 hedge funds that we track being from that sector. Read further to know tech stocks made the cut.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

#5 Apple Inc. (NASDAQ:AAPL)

Investors with Long Positions (as of December 31): 133

Aggregate Value of Investors’ Holdings (as of December 31): $17.72 Billion

While its ownership among the funds covered by us remaining unchanged during the fourth quarter, Apple Inc. (NASDAQ:AAPL) nonetheless slipped from being the most popular tech all the way down to the fifth-most popular as of the end of December. However, amid a 4.5% decline that the stock suffered during that period, the aggregate value of investors’ holdings in the company did increase marginally, by $312 million, so there was some definite some buying of shares on weakness. Apple Inc. (NASDAQ:AAPL)’s stock has lost almost 9.5% this year however, much to the chagrin of some investors, who can’t understand the market’s hesitation in the face of its low valuation. Citing the downturn in its core business, the low valuation at which it currently trades at (a P/E below 10), and the good dividend yield it provides (up to 2.22%), several analysts and investors feel that Apple Inc. has now transformed from a growth stock into a value stock. Billionaire David Einhorn‘s Greenlight Capital reduced its stake in the company by 45% to 6.28 million shares during the fourth quarter.

#T3 Amazon.com, Inc. (NASDAQ:AMZN)

Investors with Long Positions (as of December 31): 140

Aggregate Value of Investors’ Holdings (as of December 31): $17.3 Billion

Amazon.com, Inc. (NASDAQ:AMZN) proved its naysayers wrong in 2015 by posting its first quarterly profits and was rewarded handsomely by investors. The number of hedge funds covered by us with ownership in the company increased by 28 during the fourth quarter, with the aggregate value of their holdings experiencing a 28.36% jump to $17.3 billion. Though the stock has declined by over 18% this year, mostly due to the worse-than-expected fourth quarter numbers that it reported recently, investors are still optimistic about the stock. Amazon’s Web Services segment is growing at a record pace, with a 69% year-over-year increase in net sales in the fourth quarter, while Amazon.com, Inc. (NASDAQ:AMZN) is also working towards increasing its margins in its core business by reducing its dependency on other logistics and infrastructure companies. The bullish sentiment among hedge funds is shared by analysts as well; the 45 prominent analysts and brokerages that cover the stock currently have an average rating of ‘Buy’ on it with an average price target of $746.30, which represents potential upside of 35.3% from the stock’s current trading price. Michael Sidhom‘s Immersion Capital initiated a stake in the company during the fourth quarter, purchasing 236,256 shares.

#T3 Microsoft Corporation (NASDAQ:MSFT)

Investors with Long Positions (as of December 31): 140

Aggregate Value of Investors’ Holdings (as of December 31): $23.42 Billion

Microsoft Corporation (NASDAQ:MSFT)’s stock enjoyed a greater than 20% rise, and that prompted similar rises in its ownership among the funds we track as well as the aggregate value of their holdings during the fourth quarter. Though the stock has fallen by over 7% this year, it hasn’t gone below its crucial support near the $49 level, which technical analysts feel is a very positive sign. Microsoft Corporation (NASDAQ:MSFT) has been consistently increasing its dividend for the last couple of years and currently sports an annual dividend yield of 2.80%. This has resulted in a surge in its popularity among fixed income investors. In the last few months there has been evidence that Microsoft’s cloud platform Azure has been gaining some market share from Amazon’s aforementioned AWS. According to analysts there are two main reasons behind it, the primary one being that AWS doesn’t offer programming changes on its platform like Azure does and the secondary one being that Azure is relatively cheaper than AWS . Philippe Laffont‘s Coatue Management boosted its stake in Microsoft by 77% to 13.34 million shares during the October-to-December period.

#2 Facebook Inc (NASDAQ:FB)

Investors with Long Positions (as of December 31): 145

Aggregate Value of Investors’ Holdings (as of December 31): $10.71 Billion

In spite of being the stock with the smallest aggregate value in terms of investors’ holdings among the funds that we track, Facebook Inc (NASDAQ:FB) was the second-most popular tech stock in terms of number of long positions held at the end of the fourth quarter. It is also the only stock in this list that is trading in the green for the year and technical analysts feel that if the stock can hold above the psychologically important $100 mark, it has the potential to rise further in the short-term. However, a few fundamental analysts have become skeptical of the stock’s rapid rise over the past two-and-a-half years. They think that the company’s earnings must catch up fast to the rise in its stock price or the stock could consolidate at its current levels for many months, if not years. On February 2, The Guardian reported that Facebook has set up a ‘social VR’ team to explore the possibilities for virtual reality beyond gaming, which founder Mark Zuckerberg believes will be the next major frontier in online social interactions. Billionaire Stephen Mandel‘s Lone Pine Capital trimmed its stake in Facebook Inc (NASDAQ:FB) by 9% to 9.78 million shares during the fourth quarter.

#1 Alphabet Inc (NASDAQ:GOOGL)

Investors with Long Positions (as of December 31): 154

Aggregate Value of Investors’ Holdings (as of December 31): $15.10 Billion

Google’s class A shares ranked as the most popular tech stock among the investors in our database, while its class C shares also had 142 hedge fund backers. Overall, $29.3 billion worth of Google’s class A and class C shares were held by investors that we track, second only to the Warren Buffett-backed Wells Fargo & Co (NYSE:WFC). Since the start of 2016, there has been a lot of positive news concerning the company, the most prominent being the letter sent to Alphabet on February 4 by the NHTS, which agreed to recognize its artificial intelligence-backed, self-driving system as a ‘driver’. Investors are also happy that like Microsoft’s Azure, the Google cloud platform has also started giving tough competition to Amazon’s AWS. This became evident recently when the leader in streaming music services ‘Spotify’ announced that its migrating to the Google cloud platform, though it’s unclear if that means Spotify will migrate away from AWS in the process of utilize both services. On February 19, analysts at MKM Partners reiterated their ‘Buy’ rating on Google, while upping their price target on it to $950 from $940. Keith Meister’s Corvex Capital initiated a stake in Alphabet Inc (NASDAQ:GOOGL) during the fourth quarter, purchasing 750,000 class A shares of the company.

Disclosure: None