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Were Hedge Funds Right About Piling Into Facebook Inc (FB)?

Debasis Saha
·6 min read

Facebook Inc (NASDAQ:FB) has consistently been a top 3 hedge fund stock for a very long time. It was in 210 hedge funds' portfolios at the end of the second quarter of 2020. That means 25 percent of all equity hedge funds were invested in Facebook. The all time high for this statistics is 213. There were 213 hedge funds in our database with FB positions at the end of the first quarter. Our calculations also showed that FB ranked 3rd 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.

Chase Coleman Tiger Global Management
Chase Coleman Tiger Global 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 we're going to take a look at the recent hedge fund action regarding Facebook Inc (NASDAQ:FB).

What does smart money think about Facebook Inc (NASDAQ:FB)?

At the end of June, a total of 210 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -1% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FB over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FB A Good Stock To Buy?
Is FB A Good Stock To Buy?

Among these funds, Tiger Global Management LLC held the most valuable stake in Facebook Inc (NASDAQ:FB), which was worth $1987 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $1884.9 million worth of shares. Eagle Capital Management, Lone Pine Capital, and AQR 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 Immersion Capital allocated the biggest weight to Facebook Inc (NASDAQ:FB), around 30.04% of its 13F portfolio. Thunderbird Partners is also relatively very bullish on the stock, designating 24.96 percent of its 13F equity portfolio to FB.

Since Facebook Inc (NASDAQ:FB) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers who were dropping their positions entirely by the end of the second quarter. Interestingly, Andreas Halvorsen's Viking Global cut the biggest position of all the hedgies followed by Insider Monkey, comprising close to $335.1 million in stock. Anand Desai's fund, Darsana Capital Partners, also dropped its stock, about $250.2 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds by the end of the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Facebook Inc (NASDAQ:FB) but similarly valued. We will take a look at Alibaba Group Holding Limited (NYSE:BABA), Berkshire Hathaway Inc. (NYSE:BRK-B), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), Mastercard Incorporated (NYSE:MA), and The Procter & Gamble Company (NYSE:PG). All of these stocks' market caps are closest to FB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BABA,154,24386257,-13 BRK-B,107,15633556,-8 V,154,17010420,-3 JNJ,94,4731250,12 WMT,60,5829223,5 MA,147,14350337,8 PG,73,9244143,-4 Average,112.7,13026455,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 112.7 hedge funds with bullish positions and the average amount invested in these stocks was $13026 million. That figure was $25223 million in FB's case. Alibaba Group Holding Limited (NYSE:BABA) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 60 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our overall hedge fund sentiment score for FB is 98.6 (out of 100). 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on FB as the stock returned 17.1% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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