U.S. Markets open in 7 hrs 8 mins

How salesforce.com 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 #15 most popular stock among the 743 hedge funds tracked by Insider Monkey was salesforce.com, inc. (NYSE:CRM). CRM was also the 12th 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_26088" align="aligncenter" width="508"] Chase Coleman of Tiger Global[/caption]

Chase Coleman of Tiger Global

We're going to review the key hedge fund action regarding salesforce.com, inc. (NYSE:CRM).

How have hedgies been trading salesforce.com, inc. (NYSE:CRM)?

At the end of the first quarter, a total of 93 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2018. On the other hand, there were a total of 80 hedge funds with a bullish position in CRM a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in salesforce.com, inc. (NYSE:CRM). Fisher Asset Management has a $467.9 million position in the stock, comprising 0.6% of its 13F portfolio. On Fisher Asset Management's heels is Ken Griffin of Citadel Investment Group, with a $378.2 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism contain Chase Coleman's Tiger Global Management, Eashwar Krishnan's Tybourne Capital Management and Stephen Mandel's Lone Pine Capital.

Judging by the fact that salesforce.com, inc. (NYSE:CRM) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of funds that slashed their entire stakes by the end of the third quarter. Interestingly, Andreas Halvorsen's Viking Global cut the biggest stake of the 700 funds followed by Insider Monkey, comprising an estimated $708.8 million in stock. Scott Ferguson's fund, Sachem Head Capital, also dropped its stock, about $230.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to salesforce.com, inc. (NYSE:CRM). We will take a look at BHP Billiton plc (NYSE:BBL), Paypal Holdings Inc (NASDAQ:PYPL), DowDuPont Inc. (NYSE:DWDP), and PetroChina Company Limited (NYSE:PTR). This group of stocks' market caps are closest to CRM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBL,21,948033,6 PYPL,93,3610295,-10 DWDP,61,1910098,-6 PTR,12,124953,-2 Average,46.75,1648345,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $1648 million. That figure was $5226 million in CRM's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 12 bullish hedge fund positions. salesforce.com, inc. (NYSE:CRM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 and outperformed the S&P 500 ETF (SPY) by more than percentage points. Unfortunately CRM wasn't nearly as successful as these 20 stocks and hedge funds that were betting on CRM were disappointed as the stock returned -4.2% 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 3 most popular stocks among hedge funds as these stocks returned more than 35% during the first half of 2019.

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