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How Netflix and Other Hedge Fund Favorites Performed in Q2

Insider Monkey Staff

Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:

“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”

“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.

It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.

The #13 most popular stock among the 743 hedge funds tracked by Insider Monkey was Netflix, Inc. (NASDAQ:NFLX).  Netflix was also the 17th most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).

We have to warn you against indiscriminately imitating hedge funds' all stock picks. Hedge funds' top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds' top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund's 35th best idea doesn't give you the same return as investing in a hedge fund's best idea.

[caption id="attachment_204444" align="aligncenter" width="450"] Reed Hastings[/caption]

Reed Hastings

We're going to take a glance at the fresh hedge fund action surrounding Netflix, Inc. (NASDAQ:NFLX).

Hedge fund activity in Netflix, Inc. (NASDAQ:NFLX)

At Q1's end, a total of 96 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. By comparison, 75 hedge funds held shares or bullish call options in NFLX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NFLX_may2019

More specifically, SRS Investment Management was the largest shareholder of Netflix, Inc. (NASDAQ:NFLX), with a stake worth $1270.9 million reported as of the end of March. Trailing SRS Investment Management was Citadel Investment Group, which amassed a stake valued at $990.3 million. Tiger Global Management, Matrix Capital Management, and Viking Global were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key hedge funds have jumped into Netflix, Inc. (NASDAQ:NFLX) headfirst. Point72 Asset Management, managed by Steve Cohen, created the largest call position in Netflix, Inc. (NASDAQ:NFLX). Point72 Asset Management had $183.3 million invested in the company at the end of the quarter. Dan Loeb's Third Point also made a $142.6 million investment in the stock during the quarter. The following funds were also among the new NFLX investors: Aaron Cowen's Suvretta Capital Management, Josh Donfeld and David Rogers's Castle Hook Partners, and Ryan Frick and Oliver Evans's Dorsal Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to Netflix, Inc. (NASDAQ:NFLX). We will take a look at Unilever N.V. (NYSE:UN), Unilever plc (NYSE:UL), BP plc (NYSE:BP), and Citigroup Inc. (NYSE:C). All of these stocks' market caps are closest to NFLX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UN,19,1413959,4 UL,13,396239,0 BP,29,1139916,-5 C,87,9189925,-3 Average,37,3035010,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $3035 million. That figure was $9396 million in NFLX's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand Unilever plc (NYSE:UL) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Netflix, Inc. (NASDAQ:NFLX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Unfortunately NFLX wasn't nearly as successful as these 20 stocks as the stock returned 3% during the same period and underperformed the market. That's probably because Netflix delivered the bulk of its 2019 gains in Q1 when Netflix shares surged more than 33%.

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