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Here is What Hedge Funds Think About MicroStrategy Incorporated (MSTR)

Abigail Fisher

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like MicroStrategy Incorporated (NASDAQ:MSTR).

MicroStrategy Incorporated (NASDAQ:MSTR) has experienced a decrease in hedge fund sentiment of late. MSTR was in 23 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 25 hedge funds in our database with MSTR positions at the end of the previous quarter. Our calculations also showed that MSTR isn't among the 30 most popular stocks among hedge funds.

If you'd ask most investors, hedge funds are perceived as underperforming, outdated investment vehicles of yesteryear. While there are greater than 8000 funds trading today, Our researchers hone in on the moguls of this club, approximately 750 funds. It is estimated that this group of investors handle the lion's share of the hedge fund industry's total capital, and by following their unrivaled investments, Insider Monkey has found several investment strategies that have historically outstripped the market. Insider Monkey's flagship hedge fund strategy exceeded the S&P 500 index by nearly 5 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Jack Ripsteen Tim Ripsteen Potrero Capital

We're going to go over the fresh hedge fund action regarding MicroStrategy Incorporated (NASDAQ:MSTR).

Hedge fund activity in MicroStrategy Incorporated (NASDAQ:MSTR)

At Q4's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the second quarter of 2018. On the other hand, there were a total of 22 hedge funds with a bullish position in MSTR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MSTR_apr2019

According to Insider Monkey's hedge fund database, D E Shaw, managed by D. E. Shaw, holds the biggest position in MicroStrategy Incorporated (NASDAQ:MSTR). D E Shaw has a $26.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Echo Street Capital Management, managed by Greg Poole, which holds a $19.4 million position; 0.5% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions contain Noam Gottesman's GLG Partners, Cynthia Paul's Lynrock Lake and Ricky Sandler's Eminence Capital.

Because MicroStrategy Incorporated (NASDAQ:MSTR) has faced a decline in interest from the smart money, we can see that there lies a certain "tier" of fund managers that elected to cut their full holdings heading into Q3. Intriguingly, Malcolm Fairbairn's Ascend Capital said goodbye to the largest stake of the 700 funds monitored by Insider Monkey, worth close to $7.3 million in stock. Jonathan Barrett and Paul Segal's fund, Luminus Management, also cut its stock, about $4.1 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let's now review hedge fund activity in other stocks similar to MicroStrategy Incorporated (NASDAQ:MSTR). We will take a look at Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), Benefitfocus Inc (NASDAQ:BNFT), The Children's Place Inc. (NASDAQ:PLCE), and SPS Commerce, Inc. (NASDAQ:SPSC). This group of stocks' market values are similar to MSTR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KTOS,12,99253,-1 BNFT,15,68806,3 PLCE,19,169423,-4 SPSC,19,147963,0 Average,16.25,121361,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $142 million in MSTR's case. The Children's Place Inc. (NASDAQ:PLCE) is the most popular stock in this table. On the other hand Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks MicroStrategy Incorporated (NASDAQ:MSTR) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MSTR wasn't nearly as popular as these 15 stock and hedge funds that were betting on MSTR were disappointed as the stock returned 15.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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