Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:
“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”
“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.
It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.
The #21 most popular stock among the 743 hedge funds tracked by Insider Monkey was Booking Holdings Inc. (NASDAQ:BKNG). Booking Holdings was also the 17th most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).
We have to warn you against indiscriminately imitating hedge funds' all stock picks. Hedge funds' top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds' top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund's 35th best idea doesn't give you the same return as investing in a hedge fund's best idea.
[caption id="attachment_26088" align="aligncenter" width="508"] Chase Coleman of Tiger Global[/caption]
Let's take a look at the recent hedge fund action surrounding Booking Holdings Inc. (NASDAQ:BKNG).
How are hedge funds trading Booking Holdings Inc. (NASDAQ:BKNG)?
At the end of the first quarter, a total of 77 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the fourth quarter of 2018. By comparison, 75 hedge funds held shares or bullish call options in BKNG a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Booking Holdings Inc. (NASDAQ:BKNG) was held by Citadel Investment Group, which reported holding $637.6 million worth of stock at the end of March. It was followed by Lone Pine Capital with a $560.8 million position. Other investors bullish on the company included Tiger Global Management, Yacktman Asset Management, and Farallon Capital.
Since Booking Holdings Inc. (NASDAQ:BKNG) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few funds who sold off their entire stakes last quarter. Intriguingly, Eric W. Mandelblatt and Gaurav Kapadia's Soroban Capital Partners said goodbye to the biggest investment of the 700 funds followed by Insider Monkey, valued at an estimated $218.5 million in stock, and Alexander Captain's Cat Rock Capital was right behind this move, as the fund dropped about $54.2 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 7 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Booking Holdings Inc. (NASDAQ:BKNG) but similarly valued. These stocks are Charter Communications, Inc. (NASDAQ:CHTR), Caterpillar Inc. (NYSE:CAT), Bristol Myers Squibb Company (NYSE:BMY), and U.S. Bancorp (NYSE:USB). This group of stocks' market valuations match BKNG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHTR,67,7391525,3 CAT,53,3394463,-7 BMY,71,4098599,13 USB,44,6941152,3 Average,58.75,5456435,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 58.75 hedge funds with bullish positions and the average amount invested in these stocks was $5456 million. That figure was $5668 million in BKNG's case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand U.S. Bancorp (NYSE:USB) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks Booking Holdings Inc. (NASDAQ:BKNG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on BKNG as the stock returned 7.4% during the same period 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.