Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Alphabet Inc (NASDAQ:GOOGL).
Alphabet Inc (NASDAQ:GOOGL) was in 147 hedge funds' portfolios at the end of the third quarter of 2019. GOOGL has seen a huge increase in hedge fund sentiment lately. There were 129 hedge funds in our database with GOOGL holdings at the end of the previous quarter. Our calculations also showed that GOOGL ranked 5th 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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 encompassing Alphabet Inc (NASDAQ:GOOGL).
What does smart money think about Alphabet Inc (NASDAQ:GOOGL)?
Heading into the fourth quarter of 2019, a total of 147 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 137 hedge funds with a bullish position in GOOGL a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Alphabet Inc (NASDAQ:GOOGL), with a stake worth $1794.3 million reported as of the end of March. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $952 million. Diamond Hill Capital, Citadel Investment Group, and Adage Capital Management were also very fond of the stock, giving the stock large weights in their portfolios. In terms of the portfolio weights assigned to each position Thunderbird Partners allocated the biggest weight to Alphabet Inc (NASDAQ:GOOGL), around 22.6% of its portfolio. Brave Warrior Capital is also relatively very bullish on the stock, allocating 19.1 percent of its 13F equity portfolio to GOOGL.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Windacre Partnership, managed by Snehal Amin, created the most outsized position in Alphabet Inc (NASDAQ:GOOGL). Windacre Partnership had $224.2 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $107.4 million position during the quarter. The other funds with new positions in the stock are Michael Sidhom's Immersion Capital, James Crichton's Hitchwood Capital Management, and David Fiszel's Honeycomb Asset Management.
Let's go over hedge fund activity in other stocks similar to Alphabet Inc (NASDAQ:GOOGL). These stocks are Alphabet Inc (NASDAQ:GOOG), Berkshire Hathaway Inc. (NYSE:BRK-B), Facebook Inc (NASDAQ:FB), and Alibaba Group Holding Limited (NYSE:BABA). All of these stocks' market caps match GOOGL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GOOG,136,15584517,10 BRK-B,99,22272006,6 FB,179,20837470,-3 BABA,149,19197070,22 Average,140.75,19472766,8.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 140.75 hedge funds with bullish positions and the average amount invested in these stocks was $19473 million. That figure was $12322 million in GOOGL's case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Berkshire Hathaway Inc. (NYSE:BRK-B) is the least popular one with only 99 bullish hedge fund positions. Alphabet Inc (NASDAQ:GOOGL) 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 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 GOOGL, though not to the same extent, as the stock returned 5.9% during the fourth quarter (through 11/22) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.