Were Hedge Funds Right About Tesla Inc. (TSLA)?

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, 2020 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 Tesla Inc. (NASDAQ:TSLA).

Tesla Inc. (NASDAQ:TSLA) has experienced a decrease in hedge fund sentiment in recent months. Tesla Inc. (NASDAQ:TSLA) was in 60 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 68. Our calculations also showed that TSLA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium 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 take a gander at the new hedge fund action surrounding Tesla Inc. (NASDAQ:TSLA).

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

At the end of the second quarter, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TSLA over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Tesla Inc. (NASDAQ:TSLA), which was worth $16028.3 million at the end of the second quarter. On the second spot was ARK Investment Management which amassed $3693.3 million worth of shares. Coatue Management, D E Shaw, and PEAK6 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 Value Star Asset Management allocated the biggest weight to Tesla Inc. (NASDAQ:TSLA), around 27.63% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, setting aside 9.6 percent of its 13F equity portfolio to TSLA.

Seeing as Tesla Inc. (NASDAQ:TSLA) has witnessed declining sentiment from the smart money, we can see that there exists a select few fund managers who were dropping their full holdings last quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, comprising about $776.7 million in stock. Daniel S. Och’s fund, OZ Management, also sold off its stock, about $672.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Tesla Inc. (NASDAQ:TSLA) but similarly valued. We will take a look at Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Alibaba Group Holding Limited (NYSE:BABA), Visa Inc (NYSE:V), NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), and Johnson & Johnson (NYSE:JNJ). All of these stocks’ market caps resemble TSLA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 110 hedge funds with bullish positions and the average amount invested in these stocks was $14080 million. That figure was $9297 million in TSLA’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 64 bullish hedge fund positions. Compared to these stocks Tesla Inc. (NASDAQ:TSLA) is even less popular than TSM. Our overall hedge fund sentiment score for TSLA is 29.5. 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. Hedge funds clearly dropped the ball on TSLA as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on TSLA as the stock returned 63.9% since Q2 (through October 29th) and outperformed the market by an even larger margin.

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