Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Square, Inc. (NYSE:SQ) changed recently.
Square, Inc. (NYSE:SQ) investors should be aware of an increase in hedge fund sentiment recently. Square, Inc. (NYSE:SQ) was in 92 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 89. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 89 hedge funds in our database with SQ holdings at the end of December. Our calculations also showed that SQ ranked #26 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.
Philippe Laffont of Coatue 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. With all of this in mind we’re going to take a peek at the new hedge fund action surrounding Square, Inc. (NYSE:SQ).
Do Hedge Funds Think SQ Is A Good Stock To Buy Now?
At the end of March, a total of 92 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SQ over the last 23 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, ARK Investment Management, managed by Catherine D. Wood, holds the number one position in Square, Inc. (NYSE:SQ). ARK Investment Management has a $2.4926 billion position in the stock, comprising 5% of its 13F portfolio. On ARK Investment Management’s heels is Bares Capital Management, managed by Brian Bares, which holds a $1.1224 billion position; 21% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish include Ken Griffin’s Citadel Investment Group, Philippe Laffont’s Coatue Management and Lone Pine Capital. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Square, Inc. (NYSE:SQ), around 20.99% of its 13F portfolio. ShawSpring Partners is also relatively very bullish on the stock, earmarking 16.2 percent of its 13F equity portfolio to SQ.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Palestra Capital Management, managed by Andrew Immerman and Jeremy Schiffman, created the largest position in Square, Inc. (NYSE:SQ). Palestra Capital Management had $150.3 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also made a $106.2 million investment in the stock during the quarter. The following funds were also among the new SQ investors: Aaron Cowen’s Suvretta Capital Management, Steve Cohen’s Point72 Asset Management, and Ravi Chopra’s Azora Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Square, Inc. (NYSE:SQ) but similarly valued. We will take a look at Uber Technologies, Inc. (NYSE:UBER), Target Corporation (NYSE:TGT), Micron Technology, Inc. (NASDAQ:MU), CVS Health Corporation (NYSE:CVS), ServiceNow Inc (NYSE:NOW), Diageo plc (NYSE:DEO), and Booking Holdings Inc. (NASDAQ:BKNG). All of these stocks’ market caps resemble SQ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UBER | 130 | 10532866 | -5 |
| TGT | 60 | 4760942 | -18 |
| MU | 100 | 7621579 | 0 |
| CVS | 62 | 1315655 | 6 |
| NOW | 98 | 6127672 | 2 |
| DEO | 22 | 724467 | -1 |
| BKNG | 103 | 6810305 | -5 |
| Average | 82.1 | 5413355 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 82.1 hedge funds with bullish positions and the average amount invested in these stocks was $5413 million. That figure was $9202 million in SQ’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 22 bullish hedge fund positions. Square, Inc. (NYSE:SQ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SQ is 70.4. 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 25.8% in 2021 through August 6th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on SQ as the stock returned 21.2% since the end of Q1 (through 8/6) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
