Were Hedge Funds Right About Activision Blizzard, Inc. (ATVI)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Activision Blizzard, Inc. (NASDAQ:ATVI).

Activision Blizzard, Inc. (NASDAQ:ATVI) was in 97 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 101. ATVI shareholders have witnessed a decrease in hedge fund interest lately. There were 101 hedge funds in our database with ATVI positions at the end of the first quarter. Our calculations also showed that ATVI currently ranks 20th among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most shareholders, hedge funds are perceived as unimportant, outdated investment vehicles of yesteryear. While there are more than 8000 funds in operation at present, Our experts choose to focus on the masters of this group, approximately 850 funds. These hedge fund managers have their hands on most of all hedge funds’ total capital, and by watching their finest picks, Insider Monkey has deciphered a number of investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a peek at the recent hedge fund action surrounding Activision Blizzard, Inc. (NASDAQ:ATVI).

Hedge fund activity in Activision Blizzard, Inc. (NASDAQ:ATVI)

At Q2’s end, a total of 97 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. By comparison, 46 hedge funds held shares or bullish call options in ATVI a year ago. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the number one position in Activision Blizzard, Inc. (NASDAQ:ATVI), worth close to $407.4 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by Alkeon Capital Management, managed by Panayotis Takis Sparaggis, which holds a $232.9 million position; 0.6% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions consist of John Armitage’s Egerton Capital Limited, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position SoMa Equity Partners allocated the biggest weight to Activision Blizzard, Inc. (NASDAQ:ATVI), around 6.88% of its 13F portfolio. Atreides Management is also relatively very bullish on the stock, dishing out 6.75 percent of its 13F equity portfolio to ATVI.

Since Activision Blizzard, Inc. (NASDAQ:ATVI) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that slashed their positions entirely heading into Q3. Intriguingly, Alex Sacerdote’s Whale Rock Capital Management cut the largest position of the 750 funds monitored by Insider Monkey, valued at about $117.5 million in stock, and James Dinan’s York Capital Management was right behind this move, as the fund said goodbye to about $11.3 million worth. These moves are important to note, as total hedge fund interest was cut by 4 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Activision Blizzard, Inc. (NASDAQ:ATVI) but similarly valued. These stocks are CME Group Inc (NASDAQ:CME), Micron Technology, Inc. (NASDAQ:MU), Chubb Limited (NYSE:CB), Ecolab Inc. (NYSE:ECL), Takeda Pharmaceutical Company Limited (NYSE:TAK), U.S. Bancorp (NYSE:USB), and Applied Materials, Inc. (NASDAQ:AMAT). All of these stocks’ market caps match ATVI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.6 hedge funds with bullish positions and the average amount invested in these stocks was $2794 million. That figure was $3565 million in ATVI’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 18 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 89.3. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately ATVI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ATVI were disappointed as the stock returned 6.2% since the end of the second quarter (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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