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Was The Smart Money Right About Snap Inc. (SNAP)?

Asma UL Husna
·6 min read

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Snap Inc. (NYSE:SNAP) changed recently.

Is Snap Inc. (NYSE:SNAP) a healthy stock for your portfolio? The best stock pickers were in an optimistic mood. The number of bullish hedge fund positions inched up by 1 recently. Snap Inc. (NYSE:SNAP) was in 49 hedge funds' portfolios at the end of June. The all time high for this statistics is 66. Our calculations also showed that SNAP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most investors, hedge funds are seen as underperforming, outdated financial tools of years past. While there are over 8000 funds trading today, We hone in on the crème de la crème of this club, approximately 850 funds. Most estimates calculate that this group of people orchestrate bulk of all hedge funds' total asset base, and by paying attention to their top investments, Insider Monkey has come up with several investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ryan Frick Dorsal Capital
Ryan Frick Dorsal Capital

Ryan Frick of Dorsal Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's view the fresh hedge fund action surrounding Snap Inc. (NYSE:SNAP).

What have hedge funds been doing with Snap Inc. (NYSE:SNAP)?

At the end of June, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. On the other hand, there were a total of 45 hedge funds with a bullish position in SNAP a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Snap Inc. (NYSE:SNAP), with a stake worth $209.1 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $193.7 million. Samlyn Capital, Citadel Investment Group, and Dorsal Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to Snap Inc. (NYSE:SNAP), around 9.51% of its 13F portfolio. EMS Capital is also relatively very bullish on the stock, earmarking 8.73 percent of its 13F equity portfolio to SNAP.

Consequently, key hedge funds were leading the bulls' herd. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, established the most valuable position in Snap Inc. (NYSE:SNAP). Polar Capital had $85.8 million invested in the company at the end of the quarter. James Crichton's Hitchwood Capital Management also made a $54.8 million investment in the stock during the quarter. The other funds with brand new SNAP positions are Alexander Mitchell's Scopus Asset Management, Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali's Alta Park Capital, and James Parsons's Junto Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Snap Inc. (NYSE:SNAP) but similarly valued. We will take a look at The Bank of New York Mellon Corporation (NYSE:BK), Bank of Montreal (NYSE:BMO), Constellation Brands, Inc. (NYSE:STZ), Thomson Reuters Corporation (NYSE:TRI), Banco Bradesco SA (NYSE:BBD), Public Storage (NYSE:PSA), and SBA Communications Corporation (NASDAQ:SBAC). This group of stocks' market values are similar to SNAP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BK,48,4431288,-4 BMO,13,107019,0 STZ,53,1653433,3 TRI,25,440519,3 BBD,18,235952,3 PSA,26,712541,-1 SBAC,57,2165651,11 Average,34.3,1392343,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1392 million. That figure was $1602 million in SNAP's case. SBA Communications Corporation (NASDAQ:SBAC) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 13 bullish hedge fund positions. Snap Inc. (NYSE:SNAP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SNAP is 69.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on SNAP as the stock returned 83.8% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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