We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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) investors should pay attention to a decrease in activity from the world's largest hedge funds recently. MSTR was in 17 hedge funds' portfolios at the end of June. There were 20 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 (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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let's analyze the fresh hedge fund action encompassing MicroStrategy Incorporated (NASDAQ:MSTR).
How are hedge funds trading MicroStrategy Incorporated (NASDAQ:MSTR)?
Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options 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.
More specifically, Hawk Ridge Management was the largest shareholder of MicroStrategy Incorporated (NASDAQ:MSTR), with a stake worth $43 million reported as of the end of March. Trailing Hawk Ridge Management was Lynrock Lake, which amassed a stake valued at $28.7 million. GLG Partners, Arrowstreet Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that MicroStrategy Incorporated (NASDAQ:MSTR) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of money managers who sold off their positions entirely in the second quarter. At the top of the heap, Matthew Hulsizer's PEAK6 Capital Management sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth close to $6 million in stock. Ravee Mehta's fund, Nishkama Capital, also sold off its stock, about $3.1 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds in the second quarter.
Let's now review hedge fund activity in other stocks similar to MicroStrategy Incorporated (NASDAQ:MSTR). These stocks are Cray Inc. (NASDAQ:CRAY), Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA), Inogen Inc (NASDAQ:INGN), and Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY). This group of stocks' market valuations are closest to MSTR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRAY,25,167546,6 LOMA,14,16776,7 INGN,18,149739,1 PLAY,21,331682,0 Average,19.5,166436,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $175 million in MSTR's case. Cray Inc. (NASDAQ:CRAY) is the most popular stock in this table. On the other hand Loma Negra Compania Industrial Argentina Sociedad Anonima (NYSE:LOMA) is the least popular one with only 14 bullish hedge fund positions. MicroStrategy Incorporated (NASDAQ:MSTR) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on MSTR, though not to the same extent, as the stock returned 3.5% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.