It seems that the long-awaited correction is finally here and the stock markets all around the world have plummeted since their first hours of trading amid a massive sell-off and panic induced, among other things, by fears of slowing growth in China. In this way, earlier today, the Shanghai Composite Index closed 8.5% lower, while FTSE 100 and Euro Stoxx 50 followed suit and are ending their sessions with drops of over 5.50% and 6% respectively. The situation is also gloomy in the US, where Dow Jones opened around 1,000 points lower and S&P 500 lost 100 points in the first minutes of trading, and even though they managed to recover some of the losses they are still trading more than 3% in red and most likely heading towards the fifth day of losing ground.
However, despite the drama and the panic today, the situation is not likely to affect the largest members of the smart money, who have been hedging their long positions for more than a year and predicting the drop of the overheating market. Nevertheless, among the stocks that have been affected the most on Monday, many are from the technology sector and they have been slammed without any particular reason at first sight. With this in mind, let’s take a closer look at some of the top losers among the most active stocks on Monday.
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Aside from covering the stocks, we will also take a look at the hedge fund sentiment surrounding each one of them. The reason we are doing this amid the sell-off is because hedge funds usually invest for the long-term and rarely worry about short-term drops. Even though on average equity hedge funds have been underperforming their benchmarks in the last couple of years, we determined that they are very good at picking individual stocks for the medium- to long-run. Moreover, a particular group of stocks, that have performed exceptionally well in investors’ equity portfolios, are their small-cap picks, which, as our study showed, can beat the market by around one percentage point per month. Our strategy, based on imitating 15 most-popular small cap ideas, among a pool of more than 700 funds, has returned 123% since August 2012 and outperformed the S&P 500 ETF (SPY) by some 65 percentage points (read more details here).
Nevertheless, let’s take a look at the tech stocks we selected and see whether they represent good investment opportunities at the moment. We will start with Netflix, Inc. (NASDAQ:NFLX), whose stock slumped by more than 16% at the opening, but quickly recovered some of the losses and currently trades around 5.5% lower. Despite today’s loss, Netflix, Inc. (NASDAQ:NFLX)’s shares have more than doubled in value since the beginning of the year and are trading at more than 200 times earnings, which is significantly above the industry average. However, despite a high valuation, the investors from our database seem to like the stock, as at the end of June, 50 of them disclosed holding around $6.15 billion worth of stock, representing 15% of the company. Moreover, during the second quarter, these figures went up from 47 funds owning $3.86 billion worth of shares, which was mainly impacted by the 60% growth of the stock during the same period. Among the investors, we track, Chase Coleman’s Tiger Global Management is the largest shareholder of Netflix, Inc. (NASDAQ:NFLX), owning nearly 18.0 million shares (adjusted for the split). On the other hand, Carl Icahn sold the remaining of his position in the company during the second quarter, making a huge profit from an investment he had held for several years.
Let’s move on to Apple Inc. (NASDAQ:AAPL), which also opened much lower, but has since recovered and currently is only 0.60% down. Earlier today, CNBC quoted Tim Cook’s e-mail sent to Jim Cramer, where he provided some information regarding the situation in China, which accounts for a large part of Apple’s sales. Tim Cook wrote that Apple Inc. (NASDAQ:AAPL)’s has seen a strong growth in China in the last two months and he is confident that the region will continue to bring more revenues in the long-term. Apple was the second-most popular stock among the funds we track, with 144 investors disclosing long positions worth $21.27 billion in the latest round of 13F filings. However, smart money are underweight Apple Inc. (NASDAQ:AAPL), as they own less than 3% of the outstanding stock. Carl Icahn’s Icahn Capital is by far the largest shareholder of Apple in our database, owning 52.76 million shares, which account for more than 21% of its equity portfolio.
Then there is Facebook Inc (NASDAQ:FB), which has dropped by 5% since the market opened. The decline has offset the year-to-date appreciation of the stock, which currently stands at 10%. Among the pool of funds we follow, Facebook Inc (NASDAQ:FB) has gained popularity during the second quarter, as the number of investors with long positions went up by four to 133, while the aggregate value of their holdings advanced to $8.86 billion from $7.09 billion. Nevertheless, as of the end of June, these investors hold only 3.70% of the company’s stock, while the two largest among them, Stephen Mandel‘s Lone Pine Capital and Philippe Laffont’s Coatue Management, have both raised their stakes during the second quarter to 9.76 million shares and 8.73 million shares respectively.
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