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Were Hedge Funds Right About Piling Into Snap Inc. (SNAP)?

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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Snap Inc. (NYSE:SNAP), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Snap Inc. (NYSE:SNAP) investors should be aware of an increase in hedge fund sentiment in recent months. Snap Inc. (NYSE:SNAP) was in 73 hedge funds' portfolios at the end of March. The all time high for this statistic was previously 66. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SNAP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to take a gander at the latest hedge fund action regarding Snap Inc. (NYSE:SNAP).

Do Hedge Funds Think SNAP Is A Good Stock To Buy Now?

At the end of March, a total of 73 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the fourth quarter of 2020. On the other hand, there were a total of 48 hedge funds with a bullish position in SNAP a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is SNAP A Good Stock To Buy?
Is SNAP A Good Stock To Buy?

More specifically, Lone Pine Capital was the largest shareholder of Snap Inc. (NYSE:SNAP), with a stake worth $1255.8 million reported as of the end of March. Trailing Lone Pine Capital was D E Shaw, which amassed a stake valued at $578.8 million. Citadel Investment Group, Citadel Investment Group, and Arrowstreet Capital 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 Hunt Lane Capital allocated the biggest weight to Snap Inc. (NYSE:SNAP), around 10.08% of its 13F portfolio. Jeneq Management is also relatively very bullish on the stock, earmarking 9.52 percent of its 13F equity portfolio to SNAP.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Leonard Green & Partners, managed by Leonard Green, created the biggest call position in Snap Inc. (NYSE:SNAP). Leonard Green & Partners had $232.3 million invested in the company at the end of the quarter. Aaron Cowen's Suvretta Capital Management also made a $125.6 million investment in the stock during the quarter. The following funds were also among the new SNAP investors: Josh Resnick's Jericho Capital Asset Management, Sanjay Venkat's Jeneq Management, and David Fiszel's Honeycomb Asset 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 Prologis Inc (NYSE:PLD), Truist Financial Corporation (NYSE:TFC), The Bank of Nova Scotia (NYSE:BNS), China Petroleum & Chemical Corp (NYSE:SNP), FedEx Corporation (NYSE:FDX), Zoetis Inc (NYSE:ZTS), and Crown Castle International Corp. (NYSE:CCI). This group of stocks' market caps are similar to SNAP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLD,39,771817,3 TFC,36,845826,-4 BNS,19,239536,0 SNP,11,210183,-2 FDX,63,2263772,0 ZTS,58,3124680,-3 CCI,43,1995629,3 Average,38.4,1350206,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.4 hedge funds with bullish positions and the average amount invested in these stocks was $1350 million. That figure was $4324 million in SNAP's case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Snap Inc. (NYSE:SNAP) is more popular among hedge funds. Our overall hedge fund sentiment score for SNAP is 90. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 25.8% in 2021 through August 6th but still managed to beat the market by 6.7 percentage points. Hedge funds were also right about betting on SNAP as the stock returned 45.3% since the end of March (through 8/6) 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.