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Hedge Funds Aren’t Done Buying Shopify Inc (SHOP)

Abigail Fisher

In this article we will take a look at whether hedge funds think Shopify Inc (NYSE:SHOP) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Shopify Inc (NYSE:SHOP) investors should pay attention to an increase in hedge fund interest of late. SHOP was in 43 hedge funds' portfolios at the end of March. There were 30 hedge funds in our database with SHOP positions at the end of the previous quarter. Our calculations also showed that SHOP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are several formulas stock market investors use to size up publicly traded companies. A duo of the best formulas are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best hedge fund managers can outperform the market by a superb margin (see the details here).

[caption id="attachment_695350" align="aligncenter" width="399"] Anna Nikolayevsky of Axel Capital[/caption]

Anna Nikolayevsky Axel Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to analyze the latest hedge fund action encompassing Shopify Inc (NYSE:SHOP).

How have hedgies been trading Shopify Inc (NYSE:SHOP)?

At the end of the first quarter, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in SHOP a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Lone Pine Capital was the largest shareholder of Shopify Inc (NYSE:SHOP), with a stake worth $696.3 million reported as of the end of September. Trailing Lone Pine Capital was SCGE Management, which amassed a stake valued at $351.9 million. Whale Rock Capital Management, D E Shaw, and Citadel Investment Group 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 Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 24.06% of its 13F portfolio. Abdiel Capital Advisors is also relatively very bullish on the stock, dishing out 11.93 percent of its 13F equity portfolio to SHOP.

As aggregate interest increased, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Shopify Inc (NYSE:SHOP). Arrowstreet Capital had $152.8 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $46 million position during the quarter. The following funds were also among the new SHOP investors: Renaissance Technologies, Benjamin A. Smith's Laurion Capital Management, and Anna Nikolayevsky's Axel Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Shopify Inc (NYSE:SHOP) but similarly valued. We will take a look at Kimberly Clark Corporation (NYSE:KMB), Marsh & McLennan Companies, Inc. (NYSE:MMC), Deere & Company (NYSE:DE), and Global Payments Inc (NYSE:GPN). All of these stocks' market caps match SHOP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMB,46,1173309,9 MMC,37,668435,6 DE,44,875005,-6 GPN,67,2154936,3 Average,48.5,1217921,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.5 hedge funds with bullish positions and the average amount invested in these stocks was $1218 million. That figure was $2892 million in SHOP's case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand Marsh & McLennan Companies, Inc. (NYSE:MMC) is the least popular one with only 37 bullish hedge fund positions. Shopify Inc (NYSE:SHOP) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on SHOP as the stock returned 81.8% during the second quarter and outperformed the market by an even larger margin.

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

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