We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Shopify Inc (NYSE:SHOP) and determine whether hedge funds skillfully traded this stock.
Shopify Inc (NYSE:SHOP) investors should be aware of a decrease in hedge fund sentiment lately. Shopify Inc (NYSE:SHOP) was in 73 hedge funds’ portfolios at the end of September. The all time high for this statistic is 91. There were 85 hedge funds in our database with SHOP positions at the end of the second quarter. Our calculations also showed that SHOP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Chase Coleman of Tiger Global
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks 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. Now we’re going to take a look at the latest hedge fund action regarding Shopify Inc (NYSE:SHOP).
Do Hedge Funds Think SHOP Is A Good Stock To Buy Now?
At the end of September, a total of 73 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SHOP over the last 25 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Lone Pine Capital was the largest shareholder of Shopify Inc (NYSE:SHOP), with a stake worth $1938.9 million reported as of the end of September. Trailing Lone Pine Capital was Citadel Investment Group, which amassed a stake valued at $1525.4 million. ARK Investment Management, SCGE Management, and Tiger Global Management LLC were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 23.83% of its 13F portfolio. Himension Capital is also relatively very bullish on the stock, earmarking 14.02 percent of its 13F equity portfolio to SHOP.
Seeing as Shopify Inc (NYSE:SHOP) has faced falling interest from hedge fund managers, it’s easy to see that there exists a select few money managers that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Andreas Halvorsen’s Viking Global cut the biggest position of all the hedgies followed by Insider Monkey, worth close to $152.6 million in stock. Gabriel Plotkin’s fund, Melvin Capital Management, also sold off its stock, about $146.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 12 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Shopify Inc (NYSE:SHOP) but similarly valued. These stocks are Medtronic plc (NYSE:MDT), T-Mobile US, Inc. (NYSE:TMUS), SAP SE (NYSE:SAP), United Parcel Service, Inc. (NYSE:UPS), Moderna, Inc. (NASDAQ:MRNA), NextEra Energy, Inc. (NYSE:NEE), and Linde plc (NYSE:LIN). This group of stocks’ market caps are similar to SHOP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDT | 62 | 2278950 | -6 |
| TMUS | 89 | 6928776 | -11 |
| SAP | 15 | 1529829 | -2 |
| UPS | 42 | 1266269 | -10 |
| MRNA | 49 | 7315014 | 12 |
| NEE | 53 | 2374429 | -6 |
| LIN | 46 | 4769164 | -9 |
| Average | 50.9 | 3780347 | -4.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.9 hedge funds with bullish positions and the average amount invested in these stocks was $3780 million. That figure was $11451 million in SHOP’s case. T-Mobile US, Inc. (NYSE:TMUS) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 15 bullish hedge fund positions. Shopify Inc (NYSE:SHOP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHOP is 56.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, SHOP wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SHOP were disappointed as the stock returned -28.9% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
