Were These Hedge Funds Right About Dumping Twitter Inc (TWTR)?

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 Twitter Inc (NYSE:TWTR) to find out whether there were any major changes in hedge funds’ views.

Twitter Inc (NYSE:TWTR) has seen a decrease in enthusiasm from smart money recently. Twitter Inc (NYSE:TWTR) was in 89 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 107. Our calculations also showed that TWTR ranked 26th among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To most traders, hedge funds are perceived as unimportant, outdated investment tools of yesteryear. While there are greater than 8000 funds trading at the moment, Our researchers look at the elite of this group, about 850 funds. Most estimates calculate that this group of people control the lion’s share of the smart money’s total capital, and by paying attention to their matchless picks, Insider Monkey has unsheathed various investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy 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 let’s take a gander at the key hedge fund action regarding Twitter Inc (NYSE:TWTR).

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

At the end of the second quarter, a total of 89 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. By comparison, 68 hedge funds held shares or bullish call options in TWTR a year ago. 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, ARK Investment Management held the most valuable stake in Twitter Inc (NYSE:TWTR), which was worth $854.4 million at the end of the second quarter. On the second spot was Elliott Investment Management which amassed $688.1 million worth of shares. Lone Pine Capital, SRS Investment Management, and Citadel Investment Group 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 Ivy Lane Capital allocated the biggest weight to Twitter Inc (NYSE:TWTR), around 15.33% of its 13F portfolio. Stone House Capital is also relatively very bullish on the stock, earmarking 11.63 percent of its 13F equity portfolio to TWTR.

Since Twitter Inc (NYSE:TWTR) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of funds that decided to sell off their full holdings in the second quarter. At the top of the heap, Alex Sacerdote’s Whale Rock Capital Management said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, comprising an estimated $239.2 million in stock. David Brown’s fund, Hawk Ridge Management, also sold off its stock, about $50.9 million worth. These transactions are interesting, as total hedge fund interest was cut by 18 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Twitter Inc (NYSE:TWTR) but similarly valued. These stocks are Banco Bradesco SA (NYSE:BBD), DocuSign, Inc. (NASDAQ:DOCU), Freeport-McMoRan Inc. (NYSE:FCX), Ambev SA (NYSE:ABEV), BioNTech SE (NASDAQ:BNTX), Aon plc (NYSE:AON), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks’ market valuations are closest to TWTR’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $3061 million. That figure was $6031 million in TWTR’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Twitter Inc (NYSE:TWTR) is more popular among hedge funds. Our overall hedge fund sentiment score for TWTR is 62. 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. Unfortunately TWTR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TWTR were disappointed as the stock returned -22.2% since the end of the second quarter (through 10/29) 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 most of these stocks already outperformed the market since 2019.

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