At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Take-Two Interactive Software, Inc. (NASDAQ:TTWO).
Take-Two Interactive Software, Inc. (NASDAQ:TTWO) was in 66 hedge funds' portfolios at the end of the first quarter of 2020. TTWO shareholders have witnessed an increase in hedge fund interest of late. There were 59 hedge funds in our database with TTWO positions at the end of the previous quarter. Our calculations also showed that TTWO 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.
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 S&P 500 ETFs by more than 44 percentage points since March 2017 (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 stocks that are in our short portfolio.
[caption id="attachment_670377" align="aligncenter" width="400"] Aaron Cowen of Suvretta Capital Management[/caption]
At Insider Monkey 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 checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. 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. Now let's take a peek at the latest hedge fund action encompassing Take-Two Interactive Software, Inc. (NASDAQ:TTWO).
Hedge fund activity in Take-Two Interactive Software, Inc. (NASDAQ:TTWO)
At Q1's end, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the fourth quarter of 2019. On the other hand, there were a total of 50 hedge funds with a bullish position in TTWO a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Melvin Capital Management was the largest shareholder of Take-Two Interactive Software, Inc. (NASDAQ:TTWO), with a stake worth $401.2 million reported as of the end of September. Trailing Melvin Capital Management was Citadel Investment Group, which amassed a stake valued at $228.5 million. Holocene Advisors, Point72 Asset Management, and Thunderbird Partners 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 Thunderbird Partners allocated the biggest weight to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), around 11.66% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, setting aside 9.62 percent of its 13F equity portfolio to TTWO.
Consequently, specific money managers were leading the bulls' herd. Holocene Advisors, managed by Brandon Haley, initiated the most valuable position in Take-Two Interactive Software, Inc. (NASDAQ:TTWO). Holocene Advisors had $180.4 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $125.1 million position during the quarter. The following funds were also among the new TTWO investors: Aaron Cowen's Suvretta Capital Management, Andrew Immerman and Jeremy Schiffman's Palestra Capital Management, and Dmitry Balyasny's Balyasny Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Take-Two Interactive Software, Inc. (NASDAQ:TTWO) but similarly valued. These stocks are M&T Bank Corporation (NYSE:MTB), W.W. Grainger, Inc. (NYSE:GWW), CDW Corporation (NASDAQ:CDW), and Deutsche Bank AG (NYSE:DB). This group of stocks' market valuations are closest to TTWO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTB,21,687380,-11 GWW,26,345842,-3 CDW,36,947126,6 DB,12,916383,0 Average,23.75,724183,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $724 million. That figure was $1950 million in TTWO's case. CDW Corporation (NASDAQ:CDW) is the most popular stock in this table. On the other hand Deutsche Bank AG (NYSE:DB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is more popular among hedge funds. 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 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on TTWO, though not to the same extent, as the stock returned 18.5% in Q2 (through May 22nd) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.