Twitter Inc (NYSE:TWTR) shares gained as much as 4.5% during morning trading today amid news that former CEO Dick Costolo is planning to leave the firm’s board of directors once the firm concludes its search for a new chief executive. According to a report from Bloomberg, Costolo remained on the Twitter board to ease the company’s transition to a new executive, but will cut ties with the firm once a new CEO is selected and a planned board of directors reshuffle is done. Currently, co-founder Jack Dorsey is the interim CEO of the company, while also holding the CEO role at Foursquare Inc. The social network is reportedly considering bringing in new people to the board of directors to diversify the background of the group that oversees the company.
Based on the Insider Monkey database, more hedge funds went long on Twitter in the first quarter, though this is not necessarily a signal that the stock is a sure bet. Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our back tests, which were conducted over the period from 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 123.1% over the last 32 months, which is 66.5 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Furthermore, Insider Monkey tracks insiders’ transactions to see whether insiders are also bullish on these companies. On August 7, Twitter Director Peter Currie, co-founder and interim CEO Jack Dorsey, and Director Peter Fenton acquired 9,200 shares, 31,627 shares, and 7,260 shares, respectively. On August 6, Senior Vice President of Engineering Alexander Roetter and Director Evan Williams sold 1,800 and 23,064 shares. Keeping this in mind, we’re going to analyze the new hedge fund activity regarding Twitter Inc.
How are hedge funds trading Twitter Inc (NYSE:TWTR)?
At the end of March, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in Twitter Inc (NYSE: TWTR), significantly up from 42 a quarter earlier. Furthermore, there was a 72.87% quarter-over-quarter increase in hedge fund holdings to $1.75 billion. This increase is much larger than the 39.62% gain the stock delivered from January 2 to March 31. However, it should be noted that only 5.4% of Twitter’s outstanding stock was owned by these funds at the end of March, which is an indication that smart money is underweight the stock.
John Thaler’s JAT Capital Management was the fund with the largest stake in Twitter Inc (NYSE:TWTR) by March 31, owning 7.26 million shares worth about $363.7 million. Meanwhile, Daniel S. Och’s OZ Management held 4.5 million shares, acquired during the first quarter. Daniel Benton’s Andor Capital Management, Jim Simons’ Renaissance Technologies and David E. Shaw’s D.E. Shaw & Co., L.P. round up the top five shareholders of the company.
Based on the underweight sentiment of hedge funds, we consider that Twitter is not a buy at the moment. The company still has to find a new CEO, who will have to convince the investors that Twitter is capable of sustaining a strong user growth and improve its financial performance.
Disclosure: None
