Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Activision Blizzard, Inc. (NASDAQ:ATVI)? The smart money sentiment can provide an answer to this question.
Activision Blizzard, Inc. (NASDAQ:ATVI) was in 50 hedge funds' portfolios at the end of the first quarter of 2019. ATVI has experienced a decrease in activity from the world's largest hedge funds lately. There were 59 hedge funds in our database with ATVI positions at the end of the previous quarter. Our calculations also showed that atvi isn't among the 30 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.
We're going to take a gander at the recent hedge fund action regarding Activision Blizzard, Inc. (NASDAQ:ATVI).
How have hedgies been trading Activision Blizzard, Inc. (NASDAQ:ATVI)?
At Q1's end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 59 hedge funds with a bullish position in ATVI a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the most valuable position in Activision Blizzard, Inc. (NASDAQ:ATVI). D E Shaw has a $436.1 million position in the stock, comprising 0.6% of its 13F portfolio. Coming in second is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $340.1 million position; 0.9% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism comprise Philippe Laffont's Coatue Management, Andreas Halvorsen's Viking Global and Jim Simons's Renaissance Technologies.
Seeing as Activision Blizzard, Inc. (NASDAQ:ATVI) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few hedgies that decided to sell off their entire stakes heading into Q3. Intriguingly, Stephen Mandel's Lone Pine Capital said goodbye to the biggest position of the 700 funds monitored by Insider Monkey, totaling an estimated $729.8 million in stock. David Cohen and Harold Levy's fund, Iridian Asset Management, also dropped its stock, about $122.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 9 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Activision Blizzard, Inc. (NASDAQ:ATVI) but similarly valued. We will take a look at Fiserv, Inc. (NASDAQ:FISV), Sempra Energy (NYSE:SRE), Ross Stores, Inc. (NASDAQ:ROST), and Ford Motor Company (NYSE:F). This group of stocks' market caps are closest to ATVI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FISV,47,2541202,18 SRE,31,2901864,-3 ROST,29,907288,-4 F,33,1106452,0 Average,35,1864202,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1864 million. That figure was $2741 million in ATVI's case. Fiserv, Inc. (NASDAQ:FISV) is the most popular stock in this table. On the other hand Ross Stores, Inc. (NASDAQ:ROST) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Activision Blizzard, Inc. (NASDAQ:ATVI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ATVI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ATVI were disappointed as the stock returned -4.3% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.