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Did Hedge Funds Drop The Ball On About Activision Blizzard, Inc. (ATVI) ?

Nina Todic

The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Activision Blizzard, Inc. (NASDAQ:ATVI) and find out how it is affected by hedge funds' moves.

Is Activision Blizzard, Inc. (NASDAQ:ATVI) worth your attention right now? Prominent investors are taking a bearish view. The number of long hedge fund positions dropped by 4 in recent months. Our calculations also showed that ATVI isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lone Pine Capital 2015 Q2 Investor Letter

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the fresh hedge fund action regarding Activision Blizzard, Inc. (NASDAQ:ATVI).

How have hedgies been trading Activision Blizzard, Inc. (NASDAQ:ATVI)?

Heading into the third quarter of 2019, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ATVI over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ATVI Positions

More specifically, Lone Pine Capital was the largest shareholder of Activision Blizzard, Inc. (NASDAQ:ATVI), with a stake worth $487.3 million reported as of the end of March. Trailing Lone Pine Capital was Viking Global, which amassed a stake valued at $373.3 million. Two Sigma Advisors, D E Shaw, and Coatue Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Activision Blizzard, Inc. (NASDAQ:ATVI) has experienced falling interest from the smart money, we can see that there is a sect of money managers who were dropping their full holdings in the second quarter. Intriguingly, Renaissance Technologies said goodbye to the biggest stake of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $214.1 million in stock, and Eashwar Krishnan's Tybourne Capital Management was right behind this move, as the fund cut about $192.5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds in the second quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Activision Blizzard, Inc. (NASDAQ:ATVI) but similarly valued. These stocks are Fiserv, Inc. (NASDAQ:FISV), Altaba Inc. (NASDAQ:AABA), SYSCO Corporation (NYSE:SYY), and Cognizant Technology Solutions Corporation (NASDAQ:CTSH). This group of stocks' market valuations are closest to ATVI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FISV,48,2256630,1 AABA,59,13834865,-17 SYY,31,2706154,-5 CTSH,33,2283082,-11 Average,42.75,5270183,-8 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $5270 million. That figure was $2957 million in ATVI's case. Altaba Inc. (NASDAQ:AABA) is the most popular stock in this table. On the other hand SYSCO Corporation (NYSE:SYY) is the least popular one with only 31 bullish hedge fund positions. Activision Blizzard, Inc. (NASDAQ:ATVI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ATVI as the stock returned 12.1% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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