Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Alibaba Group Holding Limited (NYSE:BABA) in this article.
Alibaba Group Holding Limited (NYSE:BABA) investors should be aware of a decrease in enthusiasm from smart money recently. Alibaba Group Holding Limited (NYSE:BABA) was in 135 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 170. There were 156 hedge funds in our database with BABA holdings at the end of December. Our calculations also showed that BABA ranked 9th among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.
Mason Hawkins of Southeastern Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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. Keeping this in mind we’re going to view the new hedge fund action encompassing Alibaba Group Holding Limited (NYSE:BABA).
Do Hedge Funds Think BABA Is A Good Stock To Buy Now?
At the end of March, a total of 135 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the fourth quarter of 2020. By comparison, 167 hedge funds held shares or bullish call options in BABA a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Alibaba Group Holding Limited (NYSE:BABA) was held by Fisher Asset Management, which reported holding $3151.9 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $2369.6 million position. Other investors bullish on the company included Rokos Capital Management, Tiger Global Management LLC, and Millennium Management. In terms of the portfolio weights assigned to each position Portland Hill Asset Management allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 21.24% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, dishing out 20.1 percent of its 13F equity portfolio to BABA.
Seeing as Alibaba Group Holding Limited (NYSE:BABA) has experienced declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their entire stakes heading into Q2. At the top of the heap, Dan Loeb’s Third Point said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, comprising about $325.8 million in stock. Robert Pitts’s fund, Steadfast Capital Management, also dumped its stock, about $293.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 21 funds heading into Q2.
Let’s go over hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). These stocks are Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), and Mastercard Incorporated (NYSE:MA). This group of stocks’ market values are similar to BABA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSM | 76 | 10870661 | 4 |
| BRK-B | 111 | 19880791 | 1 |
| JPM | 111 | 5253689 | -1 |
| V | 164 | 26588103 | -2 |
| JNJ | 81 | 6913373 | 0 |
| WMT | 58 | 5881223 | -12 |
| MA | 151 | 17097200 | -3 |
| Average | 107.4 | 13212149 | -1.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 107.4 hedge funds with bullish positions and the average amount invested in these stocks was $13212 million. That figure was $15498 million in BABA’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 58 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BABA is 82.1. 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. 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 25.8% in 2021 through August 6th and beat the market again by 6.7 percentage points. Unfortunately BABA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BABA were disappointed as the stock returned -13.4% since the end of March (through 8/6) 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 many of these stocks already outperformed the market since 2019.
Follow Alibaba Group Holding Limited (NYSE:BABA)
Follow Alibaba Group Holding Limited (NYSE:BABA)
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Disclosure: None. This article was originally published at Insider Monkey.
