Was The Smart Money Right About Activision Blizzard, Inc. (ATVI)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Activision Blizzard, Inc. (NASDAQ:ATVI)? The smart money sentiment can provide an answer to this question.

Is Activision Blizzard, Inc. (NASDAQ:ATVI) a buy, sell, or hold? Money managers were buying. The number of bullish hedge fund bets improved by 2 in recent months. Activision Blizzard, Inc. (NASDAQ:ATVI) was in 78 hedge funds’ portfolios at the end of June. The all time high for this statistic is 101. Our calculations also showed that ATVI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to go over the new hedge fund action surrounding Activision Blizzard, Inc. (NASDAQ:ATVI).

Do Hedge Funds Think ATVI Is A Good Stock To Buy Now?

At Q2’s end, a total of 78 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. By comparison, 97 hedge funds held shares or bullish call options in ATVI a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Panayotis Takis Sparaggis’s Alkeon Capital Management has the biggest position in Activision Blizzard, Inc. (NASDAQ:ATVI), worth close to $444.1 million, comprising 0.7% of its total 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $322.1 million position; 0.4% of its 13F portfolio is allocated to the company. Other peers that hold long positions include Gabriel Plotkin’s Melvin Capital Management, Brandon Haley’s Holocene Advisors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Incline Global Management allocated the biggest weight to Activision Blizzard, Inc. (NASDAQ:ATVI), around 5.53% of its 13F portfolio. Fernbridge Capital Management is also relatively very bullish on the stock, dishing out 4.44 percent of its 13F equity portfolio to ATVI.

Consequently, some big names were breaking ground themselves. Bridgewater Associates, managed by Ray Dalio, created the largest position in Activision Blizzard, Inc. (NASDAQ:ATVI). Bridgewater Associates had $26.5 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $17.7 million position during the quarter. The other funds with brand new ATVI positions are James Crichton’s Hitchwood Capital Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Josh Resnick’s Jericho Capital Asset Management.

Let’s check out hedge fund activity in other stocks similar to Activision Blizzard, Inc. (NASDAQ:ATVI). We will take a look at CSX Corporation (NASDAQ:CSX), The Sherwin-Williams Company (NYSE:SHW), Coupang, Inc. (NYSE:CPNG), Equinix, Inc. (REIT) (NASDAQ:EQIX), Snowflake Inc (NYSE:SNOW), Marsh & McLennan Companies, Inc. (NYSE:MMC), and Chubb Limited (NYSE:CB). All of these stocks’ market caps resemble ATVI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.3 hedge funds with bullish positions and the average amount invested in these stocks was $6049 million. That figure was $3652 million in ATVI’s case. Snowflake Inc (NYSE:SNOW) is the most popular stock in this table. On the other hand Coupang, Inc. (NYSE:CPNG) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Activision Blizzard, Inc. (NASDAQ:ATVI) is more popular among hedge funds. Our overall hedge fund sentiment score for ATVI is 80.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately ATVI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ATVI were disappointed as the stock returned -18.1% since the end of the second quarter (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.