Were Hedge Funds Right About Snapping Up Netflix, Inc. (NFLX)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Netflix, Inc. (NASDAQ:NFLX).

Netflix, Inc. (NASDAQ:NFLX) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. Netflix, Inc. (NASDAQ:NFLX) was in 113 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 114. Our calculations also showed that NFLX ranks 13th 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.

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 58 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.

Ken Fisher of Fisher Asset 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. With all of this in mind let’s review the fresh hedge fund action surrounding Netflix, Inc. (NASDAQ:NFLX).

Hedge fund activity in Netflix, Inc. (NASDAQ:NFLX)

Heading into the third quarter of 2020, a total of 113 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NFLX over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Netflix, Inc. (NASDAQ:NFLX), which was worth $1550 million at the end of the third quarter. On the second spot was SRS Investment Management which amassed $1382.3 million worth of shares. Citadel Investment Group, Matrix Capital Management, and Eagle Capital Management 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 SRS Investment Management allocated the biggest weight to Netflix, Inc. (NASDAQ:NFLX), around 25.74% of its 13F portfolio. Voleon Capital is also relatively very bullish on the stock, dishing out 18.12 percent of its 13F equity portfolio to NFLX.

Consequently, key hedge funds have jumped into Netflix, Inc. (NASDAQ:NFLX) headfirst. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, established the most outsized position in Netflix, Inc. (NASDAQ:NFLX). Voleon Capital had $43.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $32.1 million investment in the stock during the quarter. The other funds with brand new NFLX positions are Alok Agrawal’s Bloom Tree Partners, Josh Donfeld and David Rogers’s Castle Hook Partners, and Robert B. Gillam’s McKinley Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Netflix, Inc. (NASDAQ:NFLX) but similarly valued. These stocks are Novartis AG (NYSE:NVS), Cisco Systems, Inc. (NASDAQ:CSCO), Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), PepsiCo, Inc. (NYSE:PEP), and Pfizer Inc. (NYSE:PFE). This group of stocks’ market values are similar to NFLX’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.3 hedge funds with bullish positions and the average amount invested in these stocks was $5172 million. That figure was $13488 million in NFLX’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Netflix, Inc. (NASDAQ:NFLX) is more popular among hedge funds. Our overall hedge fund sentiment score for NFLX is 93.7. 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on NFLX as the stock returned 16.6% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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