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Should I Avoid Take-Two Interactive Software, Inc. (TTWO)?

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

Is Take-Two Interactive Software, Inc. (NASDAQ:TTWO) a healthy stock for your portfolio? Money managers were selling. The number of bullish hedge fund positions shrunk by 14 in recent months. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) was in 41 hedge funds' portfolios at the end of March. The all time high for this statistic is 66. Our calculations also showed that TTWO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

At the moment there are a lot of gauges investors employ to grade their holdings. A pair of the most under-the-radar gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the elite money managers can beat the broader indices by a significant margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Alex Litowitz Magnetar Capital
Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. Now we're going to take a gander at the recent hedge fund action surrounding Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

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

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TTWO over the last 23 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Take-Two Interactive Software, Inc. (NASDAQ:TTWO), which was worth $133.5 million at the end of the fourth quarter. On the second spot was Holocene Advisors which amassed $103.9 million worth of shares. Citadel Investment Group, Renaissance Technologies, and Valiant Capital 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 Tensile Capital allocated the biggest weight to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), around 7.66% of its 13F portfolio. Marlowe Partners is also relatively very bullish on the stock, setting aside 6.68 percent of its 13F equity portfolio to TTWO.

Judging by the fact that Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has witnessed declining sentiment from hedge fund managers, it's safe to say that there were a few hedgies that slashed their positions entirely heading into Q2. Intriguingly, Michael Rockefeller and KarláKroeker's Woodline Partners said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, comprising close to $57.2 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $46.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 14 funds heading into Q2.

Let's check out hedge fund activity in other stocks similar to Take-Two Interactive Software, Inc. (NASDAQ:TTWO). We will take a look at Teradyne, Inc. (NASDAQ:TER), Vipshop Holdings Limited (NYSE:VIPS), Fortis Inc. (NYSE:FTS), Cheniere Energy Partners LP (NYSE:CQP), Entergy Corporation (NYSE:ETR), Ventas, Inc. (NYSE:VTR), and Restaurant Brands International Inc (NYSE:QSR). This group of stocks' market values match TTWO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TER,44,1587670,-3 VIPS,54,1341628,27 FTS,10,179412,1 CQP,2,8851,-2 ETR,31,857729,-5 VTR,27,231183,9 QSR,26,2253516,-13 Average,27.7,922856,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $923 million. That figure was $822 million in TTWO's case. Vipshop Holdings Limited (NYSE:VIPS) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 2 bullish hedge fund positions. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TTWO is 47.1. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately TTWO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TTWO were disappointed as the stock returned -3.1% since the end of March (through 6/18) 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 many of these stocks already outperformed the market since 2019.

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