Is Alibaba Group Holding Limited (NYSE:BABA) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Alibaba Group Holding Limited (NYSE:BABA) investors should be aware of a huge increase in enthusiasm from smart money in recent months. Our calculations also showed that BABA ranked 4th overall among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the latest hedge fund action surrounding Alibaba Group Holding Limited (NYSE:BABA).
What have hedge funds been doing with Alibaba Group Holding Limited (NYSE:BABA)?
Heading into the fourth quarter of 2019, a total of 149 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. By comparison, 127 hedge funds held shares or bullish call options in BABA a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Alibaba Group Holding Limited (NYSE:BABA) was held by Fisher Asset Management, which reported holding $2251.9 million worth of stock at the end of March. It was followed by Tiger Global Management with a $1301.1 million position. Other investors bullish on the company included Lone Pine Capital, D E Shaw, and Egerton Capital Limited. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 39% of its portfolio. Keywise Capital Management is also relatively very bullish on the stock, dishing out 26.8 percent of its 13F equity portfolio to BABA.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Sculptor Capital, founded by Daniel S. Och, initiated the most outsized call position in Alibaba Group Holding Limited (NYSE:BABA). Sculptor Capital had $285.9 million invested in the company at the end of the quarter. David Tepper's Appaloosa Management also initiated a $217.4 million position during the quarter. The following funds were also among the new BABA investors: Matt Sirovich and Jeremy Mindich's Scopia Capital, Jacob Doft's Highline Capital Management, and Jeffrey Altman's Owl Creek Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). These stocks are Visa Inc (NYSE:V), JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT). This group of stocks' market values resemble BABA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position V,132,15686359,15 JPM,84,11167465,-6 JNJ,76,7326703,13 WMT,56,5584105,0 Average,87,9941158,5.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 87 hedge funds with bullish positions and the average amount invested in these stocks was $9941 million. That figure was $19197 million in BABA's case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 56 bullish hedge fund positions. Compared to these stocks Alibaba Group Holding Limited (NYSE:BABA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on BABA as the stock returned 11.7% during Q4 (through 11/22) and outperformed the market by an even larger margin in Q4. 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.