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Hedge Funds Cashing Out Of MicroStrategy Incorporated (MSTR)

Abigail Fisher

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of MicroStrategy Incorporated (NASDAQ:MSTR).

MicroStrategy Incorporated (NASDAQ:MSTR) investors should be aware of a decrease in hedge fund sentiment recently. Our calculations also showed that MSTR 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 a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26092" align="aligncenter" width="394"] Joel Greenblatt of Gotham Asset Management[/caption]

GOTHAM ASSET MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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. With all of this in mind we're going to take a look at the fresh hedge fund action regarding MicroStrategy Incorporated (NASDAQ:MSTR).

How have hedgies been trading MicroStrategy Incorporated (NASDAQ:MSTR)?

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MSTR over the last 18 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of MicroStrategy Incorporated (NASDAQ:MSTR), with a stake worth $11.1 million reported as of the end of September. Trailing Arrowstreet Capital was Winton Capital Management, which amassed a stake valued at $9.6 million. D E Shaw, Lynrock Lake, and AQR Capital Management 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 Clearline Capital allocated the biggest weight to MicroStrategy Incorporated (NASDAQ:MSTR), around 2.08% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, dishing out 1.99 percent of its 13F equity portfolio to MSTR.

Due to the fact that MicroStrategy Incorporated (NASDAQ:MSTR) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there is a sect of funds who sold off their entire stakes last quarter. At the top of the heap, David Brown's Hawk Ridge Management sold off the biggest investment of the 750 funds watched by Insider Monkey, totaling close to $6.6 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $3.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as MicroStrategy Incorporated (NASDAQ:MSTR) but similarly valued. We will take a look at Innoviva, Inc. (NASDAQ:INVA), Atrion Corporation (NASDAQ:ATRI), Tri Pointe Group Inc (NYSE:TPH), and Masonite International Corp (NYSE:DOOR). This group of stocks' market values are closest to MSTR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INVA,19,252057,0 ATRI,12,68214,-3 TPH,27,142074,-5 DOOR,26,271479,5 Average,21,183456,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $64 million in MSTR's case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand Atrion Corporation (NASDAQ:ATRI) is the least popular one with only 12 bullish hedge fund positions. MicroStrategy Incorporated (NASDAQ:MSTR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately MSTR wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MSTR investors were disappointed as the stock returned 0.5% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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