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Hedge Funds Have Never Been This Bullish On Snap Inc. (SNAP)

Reymerlyn Martin

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is Snap Inc. (NYSE:SNAP) a healthy stock for your portfolio? Hedge funds are taking an optimistic view. The number of bullish hedge fund bets rose by 14 lately. Our calculations also showed that SNAP isn't 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.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Daniel Sundheim D1 Capital

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 peek at the latest hedge fund action surrounding Snap Inc. (NYSE:SNAP).

How are hedge funds trading Snap Inc. (NYSE:SNAP)?

At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 45% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SNAP 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.

SNAP_oct2019

More specifically, Slate Path Capital was the largest shareholder of Snap Inc. (NYSE:SNAP), with a stake worth $270.4 million reported as of the end of March. Trailing Slate Path Capital was Jericho Capital Asset Management, which amassed a stake valued at $222.9 million. Tybourne Capital Management, Citadel Investment Group, and EMS Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, some big names have been driving this bullishness. Jericho Capital Asset Management, managed by Josh Resnick, established the most outsized position in Snap Inc. (NYSE:SNAP). Jericho Capital Asset Management had $222.9 million invested in the company at the end of the quarter. James Crichton's Hitchwood Capital Management also made a $85.8 million investment in the stock during the quarter. The other funds with brand new SNAP positions are Daniel Sundheim's D1 Capital Partners, Kevin Cottrell and Chris LaSusa's KCL Capital, and Robert Pitts's Steadfast Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Snap Inc. (NYSE:SNAP) but similarly valued. We will take a look at IAC/InterActiveCorp (NASDAQ:IAC), Liberty Broadband Corp (NASDAQ:LBRDA), Amcor plc (NYSE:AMCR), and Ameren Corporation (NYSE:AEE). This group of stocks' market values resemble SNAP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IAC,47,1728406,-4 LBRDA,20,633003,1 AMCR,12,157102,12 AEE,18,738905,-3 Average,24.25,814354,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $814 million. That figure was $1581 million in SNAP's case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 12 bullish hedge fund positions. Snap Inc. (NYSE:SNAP) 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 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 SNAP as the stock returned 10.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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