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Were Hedge Funds Right About Betting On Apple Inc. (AAPL)?

Abigail Fisher
·6 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Apple Inc. (NASDAQ:AAPL) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Apple Inc. (NASDAQ:AAPL) investors should pay attention to an increase in hedge fund sentiment of late. Apple Inc. (NASDAQ:AAPL) was in 128 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 152. Our calculations also showed that AAPL ranked #11 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Fisher FISHER ASSET MANAGEMENT
Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

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. Keeping this in mind let's go over the key hedge fund action surrounding Apple Inc. (NASDAQ:AAPL).

What does smart money think about Apple Inc. (NASDAQ:AAPL)?

At the end of the second quarter, a total of 128 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the first quarter of 2020. By comparison, 95 hedge funds held shares or bullish call options in AAPL a year ago. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the number one position in Apple Inc. (NASDAQ:AAPL). Berkshire Hathaway has a $89.4328 billion position in the stock, comprising 44.2% of its 13F portfolio. The second most bullish fund manager is Fisher Asset Management, managed by Ken Fisher, which holds a $5.221 billion position; 5.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish contain Ken Griffin's Citadel Investment Group, Cliff Asness's AQR Capital Management and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to Apple Inc. (NASDAQ:AAPL), around 44.18% of its 13F portfolio. White Square Capital is also relatively very bullish on the stock, dishing out 26.07 percent of its 13F equity portfolio to AAPL.

As industrywide interest jumped, key money managers have been driving this bullishness. Tairen Capital, managed by Larry Chen and Terry Zhang, established the largest position in Apple Inc. (NASDAQ:AAPL). Tairen Capital had $115.1 million invested in the company at the end of the quarter. John Hurley's Cavalry Asset Management also initiated a $33.9 million position during the quarter. The other funds with brand new AAPL positions are Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali's Alta Park Capital, Florian Kronawitter's White Square Capital, and Karim Abbadi and Edward McBride's Centiva Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Apple Inc. (NASDAQ:AAPL) but similarly valued. We will take a look at Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Alphabet Inc (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB), Alibaba Group Holding Limited (NYSE:BABA), and Berkshire Hathaway Inc. (NYSE:BRK-B). This group of stocks' market values are closest to AAPL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSFT,222,38737215,-13 AMZN,248,43217853,-3 GOOGL,157,13533499,-10 GOOG,144,14761874,-3 FB,210,25222524,-3 BABA,154,24386257,-13 BRK-B,107,15633556,-8 Average,177.4,25070397,-7.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 177.4 hedge funds with bullish positions and the average amount invested in these stocks was $25070 million. That figure was $105964 million in AAPL's case. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Berkshire Hathaway Inc. (NYSE:BRK-B) is the least popular one with only 107 bullish hedge fund positions. Apple Inc. (NASDAQ:AAPL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AAPL is 52.7. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. A smaller number of hedge funds were also right about betting on AAPL as the stock returned 30.7% since the end of the second quarter (through 10/16) and outperformed the market by an even larger margin.

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

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