Were Hedge Funds Right About Piling Into Alphabet Inc (GOOGL)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Alphabet Inc (NASDAQ:GOOGL) to find out whether there were any major changes in hedge funds’ views.

Alphabet Inc (NASDAQ:GOOGL) has seen an increase in activity from the world’s largest hedge funds heading into the third quarter. Alphabet Inc (NASDAQ:GOOGL) was in 190 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 185. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GOOGL ranked #4 among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Robert Pohly of Samlyn Capital

Now we’re going to take a look at the recent hedge fund action regarding Alphabet Inc (NASDAQ:GOOGL).

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

At Q2’s end, a total of 190 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GOOGL over the last 24 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Alphabet Inc (NASDAQ:GOOGL), which was worth $4346.1 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $3702.2 million worth of shares. TCI Fund Management, Arrowstreet Capital, and D E Shaw 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 Fosse Capital Partners allocated the biggest weight to Alphabet Inc (NASDAQ:GOOGL), around 29.32% of its 13F portfolio. AltaRock Partners is also relatively very bullish on the stock, earmarking 21.62 percent of its 13F equity portfolio to GOOGL.

Now, key hedge funds have jumped into Alphabet Inc (NASDAQ:GOOGL) headfirst. Atreides Management, managed by Gavin Baker, established the largest call position in Alphabet Inc (NASDAQ:GOOGL). Atreides Management had $366.3 million invested in the company at the end of the quarter. Farhad Nanji and Michael DeMichele’s MFN Partners also made a $183.1 million investment in the stock during the quarter. The following funds were also among the new GOOGL investors: Robert Pohly’s Samlyn Capital, Joseph Samuels’s Islet Management, and Chen Tianqiao’s Shanda Asset Management.

Let’s go over hedge fund activity in other stocks similar to Alphabet Inc (NASDAQ:GOOGL). These stocks are Facebook Inc (NASDAQ:FB), Tesla Inc. (NASDAQ:TSLA), Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Alibaba Group Holding Limited (NYSE:BABA), Visa Inc (NYSE:V), and NVIDIA Corporation (NASDAQ:NVDA). All of these stocks’ market caps match GOOGL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 128.6 hedge funds with bullish positions and the average amount invested in these stocks was $19746 million. That figure was $26834 million in GOOGL’s case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 60 bullish hedge fund positions. Alphabet Inc (NASDAQ:GOOGL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GOOGL is 88.6. 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 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on GOOGL as the stock returned 21.3% since the end of Q2 (through 10/29) and outperformed the market by double digits. Hedge funds were rewarded for their relative bullishness.

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