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10 Stocks Hedge Funds Dumped Before the Market Crash

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·9 min read
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The writing was kind of on the wall at the end of March. S&P 500 Index was near the 4600 level whereas inflation rate was close to 8% and the 10-year Treasury yield jumped to 2.7%. The probability of further increases in interest rates and sharp declines in the stock market was much larger than the probability of further gains in stock prices. So, we started telling our premium subscribers to short the market at the end of March. Most hedge funds interpreted the macro developments the same way we did and reduced their exposure. The total value of stock holdings in hedge funds' portfolios went down from $3.1 trillion at the end of December to $2.8 trillion at the end of March.

This isn't a terribly large reduction in market exposure, but it is still a reduction. It still shows that hedge funds have a slight edge in market timing.

Insider Monkey has long been a believer of imitating the top stock picks of hedge funds, and this approach has helped us beat the market on average over the last several years. For instance, between March 2017 and April 2022 our monthly newsletter's stock picks returned 159.9%, vs. 89.8% for the SPY. Our stock picks outperformed the market by 70 percentage points.

We don’t talk much about our monthly newsletter's stock picks publicly, but we have been sharing the list of 30 most popular stocks among hedge funds here at Insider Monkey since the end of 2018. The majority of these stocks aren’t traditional value stocks. You can check out the latest list of the 30 most popular hedge fund stocks here. You can also check out our three previous articles about the 30 most popular hedge fund stocks at the end of 2021, 2021 Q3 and 2021 Q2 here.

Overall, hedge funds’ top 5 stock picks returned 29.6% in 2021 and beat the market by 3.6 percentage points. From 2014 through the end of 2021, these 5 stocks returned 324.5% and beat the S&P 500 Index by 131 percentage points. So, this year the S&P 500 Index started to close the performance gap, but we believe this is just a temporary blip and when the bull market resumes, hedge funds' top stock picks will resume their historical trajectory of strong outperformance.

Every quarter we process more than 900 hedge funds’ 13F filings and identify the top stocks among ALL 900+ hedge funds. In this article we are going to take a look at 10 stocks that hedge funds dumped the most or dropped out of hedge funds' top 30 stocks list.

10. Danaher Corporation (NYSE: DHR)

Number of Hedge Funds: 83 (2022Q1) Number of Hedge Funds: 87 (2021Q4) Number of Hedge Funds: 74 (2021Q3) Total Dollar Amount of Long Hedge Fund Positions: $6.2 billion Percent of Hedge Funds with Long Positions: 9.1% Popularity Ranking (2021Q4):29 Popularity Ranking (2021Q3): 42 Noteworthy Hedge Fund Shareholders: Dan Loeb, Barry Dargan

Danaher Corporation ranked 29th among the 30 most popular stocks among hedge funds at the end of December. During the first quarter the number of hedge funds with bullish Danaher Corporation positions declined by 4. This is usually not enough to cause any alarms but because of this decline Danaher isn't one of the top 30 hedge fund stocks anymore. D1 Capital, Sculptor Capital, Element Capital and Islet Management were among the hedge funds that dumped Danaher Corporation (DHR) during the first quarter.

9. Tesla Inc. (NASDAQ: TSLA)

Number of Hedge Funds: 80 (2022Q1) Number of Hedge Funds: 91 (2021Q4) Number of Hedge Funds: 60 (2021Q3) Total Dollar Amount of Long Hedge Fund Positions: $11.3 billion Percent of Hedge Funds with Long Positions: 8.8% Popularity Ranking (2021Q4): 26 Popularity Ranking (2021Q3): 102 Noteworthy Hedge Fund Shareholders: Cathie Wood, Motley Fool Asset Management

Tesla Inc. (TSLA) was the 26th most popular stock among hedge funds at the end of December. During the first quarter eleven hedge funds (net change) sold out of Tesla Inc. As a result, Tesla isn't among the 30 most popular stocks among hedge funds. Ursa Fund Management, Deepcurrents Investment Group, and Viking Global sold out of Tesla Inc. All of these hedge funds had at least $180 million invested in Tesla Inc. at the end of December. Not everyone was bearish though. Here is what Baron Funds said about Tesla:

“During the first quarter, we bought back shares in Tesla, Inc., which designs, manufactures, and sells electric vehicles, solar products, energy storage solutions, and batteries. We believe that despite the run in the stock over the last few years, Tesla presents a favorable risk/reward profile and remains a Big Idea with only about 1% market share of the automotive market. Since we bought the stock during the first quarter, shares increased 27.1%, despite a complex supply-chain environment, on continued revenue growth and record profitability. Robust demand and operational optimization allow the company to offset inflationary pressures while vertical integration provides flexibility around supply bottlenecks. Moreover, we expect new localized manufacturing capacity to drive additional efficiencies while software initiatives, including the autonomous driving program, are accelerating, offering valuable optionality to the stock.”

top 10 car company stocks to invest in
top 10 car company stocks to invest in

Pixabay/Public Domain

8. Block Inc. (NYSE: SQ)

Number of Hedge Funds: 84 (2022Q1) Number of Hedge Funds: 96 (2021Q4) Number of Hedge Funds: 98 (2021Q3) Number of Hedge Funds: 94 (2021Q2) Total Dollar Amount of Long Hedge Fund Positions: $6.2 billion Percent of Hedge Funds with Long Positions: 9.2% Popularity Ranking (2021Q4): 21 Popularity Ranking (2021Q3): 18 Popularity Ranking (2021Q2): 22 Noteworthy Hedge Fund Shareholders: Bares Capital Management, Cathie Wood

Block Inc (SQ) was the 21st most popular stocks among hedge funds at the end of December. The stock was in 96 hedge funds' portfolio at the time. There was a net decline of 12 hedge funds during the first quarter and Block Inc. dropped out of the top 30 hedge fund stocks list. Here is how Ferrer Wealth Advisors explained why they dumped Block Inc. (SQ):

Block (formerly Square): We ‘adopted’ Block’s stock after the company bought Afterpay, which we were investors in. We had been trimming the Afterpay position throughout 2021 and trimmed again after the acquisition, so the position was quite small. We held onto that small portion, as we did think the acquisition made sense and were excited to see the two companies integrate and for Block to create a closed loop network between merchants and consumers. However, the market punished most highly valued tech stocks over the last months, and we saw the position move against us by over 50%. We are firm believers that when a stock goes against you by 50%+, you need to do something about it. Either trim/sell and reinvest or buy more. In the case of Block, the original reason for holding was to see how the acquisition and integration with Afterpay panned out. The market did not give us the time to see this play out, thus we were not comfortable adding more to the position. Further for the stock to recover to our purchase price, we felt the company’s valuation would need to command a future exit multiple that the market would be unlikely to pay in this environment. Given this, we exited the remainder of the position.”

7. Shopify Inc. (NYSE: SHOP)

Number of Hedge Funds: 72 (2022Q1) Number of Hedge Funds: 86 (2021Q4) Number of Hedge Funds: 73 (2021Q3) Total Dollar Amount of Long Hedge Fund Positions: $5.8 billion Percent of Hedge Funds with Long Positions: 7.9% Popularity Ranking (2021Q4): 30 Popularity Ranking (2021Q3): 49 Noteworthy Hedge Fund Shareholders: Cathie Wood, Lone Pine Capital

Shopify Inc. (SHOP) saw a large inflow of hedge funds during the fourth quarter of 2021 as SHOP shares peaked at $1770. Unfortunately, Shopify Inc. (SHOP) tanked, and hedge funds rushed to the exits during the first quarter. The number of bullish SHOP positions among hedge funds declined by 14 during the first quarter. Shopify Inc (SHOP) shares declined close to 50% since then, so hedge funds like Egerton Capital, D1 Capital, and Coatue made the right move. Here is what Baron Global Advantage Fund said about Shopify Inc. (SHOP) recently:

Shopify Inc. is a cloud-based software provider offering an operating system for multi-channel commerce. Shopify has been adopted by over two million merchants who processed $175 billion of gross merchandise volume in 2021, making it the second largest e-commerce player in the U.S. The stock corrected sharply in the first quarter, declining 51%, as a result of investor rotation out of fast-growing, long-duration stocks and after the company released quarterly results, expecting a normalization in the rapid growth it has experienced during the early stages of the pandemic. We remain shareholders as we believe Shopify has a long runway for growth addressing less than 1% of global commerce spending with a unique and competitively advantaged platform.”

Cathie Wood ARK Investment Management
Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

6. General Motors (NYSE:GM)

Number of Hedge Funds: 76 (2022Q1) Number of Hedge Funds: 90 (2021Q4) Number of Hedge Funds: 77 (2021Q3) Total Dollar Amount of Long Hedge Fund Positions: $5.5 billion Percent of Hedge Funds with Long Positions: 8.3% Popularity Ranking (2021Q4): 28 Popularity Ranking (2021Q3): 36 Noteworthy Hedge Fund Shareholders: Warren Buffett, Greenhaven Associates

General Motors was among the 30 most popular hedge fund stocks at the end of December, but that was short lived. The number of bullish hedge fund positions in GM went down by 14 during the first quarter as billionaires like David Tepper, George Soros, and Louis Bacon dumped General Motors (GM) shares. Here is what Oakmark Global Fund has to say about General Motors Company (NYSE:GM) in its Q1 2022 investor letter:

General Motors (NYSE:GM) was a detractor during the quarter, due to increased macro uncertainty, higher fuel prices, and concerns over rising input costs, which pressured the company in particular and the auto industry as a whole. While we are closely monitoring the potential impact of these dynamics, industry demand remains robust, driven by strong consumer balance sheets and pent-up demand after multiple years of constrained production. We also remain confident in GM’s ability to navigate a complex operating environment, which the company has consistently demonstrated over the past few years. Finally, the long-term picture remains bright. We believe GM is significantly undervalued, is well-positioned for the long-term transition to electric vehicles and has numerous needle-moving ancillary business opportunities (most notably Cruise, which is an industry leader in autonomous vehicle technology) that are underappreciated.”

Click to continue reading and see the Top 5 Stocks Hedge Funds Dumped Before the Market Crash.

Disclosure: None. 10 Stocks Hedge Funds Are Dumping is originally published at Insider Monkey.