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

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, 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 40,000 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).

Is Activision Blizzard, Inc. (NASDAQ:ATVI) a buy here? Investors who are in the know were taking a bearish view. The number of bullish hedge fund bets were cut by 12 lately. Activision Blizzard, Inc. (NASDAQ:ATVI) was in 81 hedge funds’ portfolios at the end of the fourth quarter of 2020. 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 Q4 rankings). There were 93 hedge funds in our database with ATVI holdings at the end of September.

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 124 percentage points since March 2017 (see the details here).

Gil Simon of SoMa Equity Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind let’s check out the latest hedge fund action surrounding Activision Blizzard, Inc. (NASDAQ:ATVI).

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

At Q4’s end, a total of 81 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ATVI over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Ken Griffin’s Citadel Investment Group has the number one position in Activision Blizzard, Inc. (NASDAQ:ATVI), worth close to $461 million, comprising 0.1% of its total 13F portfolio. Coming in second is Alkeon Capital Management, led by Panayotis Takis Sparaggis, holding a $315.2 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Gil Simon’s SoMa Equity Partners and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Fernbridge Capital Management allocated the biggest weight to Activision Blizzard, Inc. (NASDAQ:ATVI), around 9.22% of its 13F portfolio. Incline Global Management is also relatively very bullish on the stock, dishing out 7.64 percent of its 13F equity portfolio to ATVI.

Due to the fact that Activision Blizzard, Inc. (NASDAQ:ATVI) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds that elected to cut their entire stakes in the fourth quarter. It’s worth mentioning that John Armitage’s Egerton Capital Limited said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $107.4 million in stock. Glen Kacher’s fund, Light Street Capital, also said goodbye to its stock, about $43.5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 12 funds in the fourth quarter.

Let’s check out hedge fund activity in other stocks similar to Activision Blizzard, Inc. (NASDAQ:ATVI). These stocks are China Petroleum & Chemical Corp (NYSE:SNP), U.S. Bancorp (NYSE:USB), Chubb Limited (NYSE:CB), BP plc (NYSE:BP), CSX Corporation (NASDAQ:CSX), FedEx Corporation (NYSE:FDX), and Crown Castle International Corp. (REIT) (NYSE:CCI). This group of stocks’ market caps are closest to ATVI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $2549 million. That figure was $3739 million in ATVI’s case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 13 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 67.1. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Unfortunately ATVI wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ATVI were disappointed as the stock returned 3.9% since the end of the fourth quarter (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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