How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tesla Inc. (NASDAQ:TSLA) and determine whether hedge funds had an edge regarding this stock.
Tesla Inc. (NASDAQ:TSLA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 60 hedge funds’ portfolios at the end of September. Our calculations also showed that TSLA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and NVIDIA Corporation (NASDAQ:NVDA) to gather more data points.
Matthew Hulsizer of PEAK6 Capital
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 go over the recent hedge fund action encompassing Tesla Inc. (NASDAQ:TSLA).
Do Hedge Funds Think TSLA Is A Good Stock To Buy Now?
At third quarter’s end, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in TSLA over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Tesla Inc. (NASDAQ:TSLA). Citadel Investment Group has a $17.2621 billion call position in the stock, comprising 3.6% of its 13F portfolio. Coming in second is Catherine D. Wood of ARK Investment Management, with a $3.0649 billion position; 7.4% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain Matthew Hulsizer’s PEAK6 Capital Management, Ken Griffin’s Citadel Investment Group and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Symmetry Peak Management allocated the biggest weight to Tesla Inc. (NASDAQ:TSLA), around 61.73% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, earmarking 31.34 percent of its 13F equity portfolio to TSLA.
Due to the fact that Tesla Inc. (NASDAQ:TSLA) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few funds that slashed their entire stakes in the third quarter. It’s worth mentioning that Chris Rokos’s Rokos Capital Management dropped the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $75.4 million in call options. Morris Mark’s fund, Mark Asset Management, also said goodbye to its call options, about $24.5 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Tesla Inc. (NASDAQ:TSLA) but similarly valued. These stocks are Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), and Alibaba Group Holding Limited (NYSE:BABA). All of these stocks’ market caps are similar to TSLA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRK-B | 106 | 19463815 | -10 |
| TSM | 67 | 9511459 | 3 |
| NVDA | 83 | 10050216 | -3 |
| JPM | 101 | 5635067 | -7 |
| V | 143 | 26169435 | -19 |
| JNJ | 88 | 6871782 | 0 |
| BABA | 115 | 10201096 | -31 |
| Average | 100.4 | 12557553 | -9.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 100.4 hedge funds with bullish positions and the average amount invested in these stocks was $12558 million. That figure was $10645 million in TSLA’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 67 bullish hedge fund positions. Compared to these stocks Tesla Inc. (NASDAQ:TSLA) is even less popular than TSM. Our overall hedge fund sentiment score for TSLA is 31.5. 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. Hedge funds clearly dropped the ball on TSLA as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on TSLA as the stock returned 20.8% since Q3 (through January 31st) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
