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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards The Trade Desk, Inc. (NASDAQ:TTD).
Is TTD stock a buy? The Trade Desk, Inc. (NASDAQ:TTD) was in 35 hedge funds' portfolios at the end of December. The all time high for this statistic is 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. TTD investors should be aware of an increase in hedge fund sentiment of late. There were 23 hedge funds in our database with TTD holdings at the end of September. Our calculations also showed that TTD isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Paul Marshall of Marshall Wace
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. Keeping this in mind let's take a look at the recent hedge fund action surrounding The Trade Desk, Inc. (NASDAQ:TTD).
Do Hedge Funds Think TTD Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 52% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in TTD 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.
Among these funds, D E Shaw held the most valuable stake in The Trade Desk, Inc. (NASDAQ:TTD), which was worth $351.1 million at the end of the fourth quarter. On the second spot was Zevenbergen Capital Investments which amassed $298.6 million worth of shares. Citadel Investment Group, Millennium Management, and Renaissance Technologies 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 Zevenbergen Capital Investments allocated the biggest weight to The Trade Desk, Inc. (NASDAQ:TTD), around 5.23% of its 13F portfolio. Force Hill Capital Management is also relatively very bullish on the stock, designating 4.7 percent of its 13F equity portfolio to TTD.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Renaissance Technologies, created the largest position in The Trade Desk, Inc. (NASDAQ:TTD). Renaissance Technologies had $81.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $24.6 million position during the quarter. The following funds were also among the new TTD investors: Suraj Parkash Chopra's Force Hill Capital Management, Greg Eisner's Engineers Gate Manager, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's also examine hedge fund activity in other stocks similar to The Trade Desk, Inc. (NASDAQ:TTD). These stocks are The Bank of New York Mellon Corporation (NYSE:BK), Microchip Technology Incorporated (NASDAQ:MCHP), Cintas Corporation (NASDAQ:CTAS), Chewy, Inc. (NYSE:CHWY), MSCI Inc (NYSE:MSCI), Brown-Forman Corporation (NYSE:BF), and ING Groep N.V. (NYSE:ING). This group of stocks' market values are similar to TTD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BK,47,4689872,-1 MCHP,45,961474,10 CTAS,36,746276,-2 CHWY,38,728528,-8 MSCI,41,984592,-6 BF,29,1575074,-3 ING,9,397074,0 Average,35,1440413,-1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1440 million. That figure was $1195 million in TTD's case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 9 bullish hedge fund positions. The Trade Desk, Inc. (NASDAQ:TTD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TTD is 74.2. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and surpassed the market again by 0.4 percentage points. Unfortunately TTD wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); TTD investors were disappointed as the stock returned -17.7% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.