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Were Hedge Funds Right About Souring On Activision Blizzard, Inc. (ATVI)?

Reymerlyn Martin

Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about Activision Blizzard, Inc. (NASDAQ:ATVI).

Is Activision Blizzard, Inc. (NASDAQ:ATVI) a superb investment now? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund bets were cut by 15 lately. Our calculations also showed that ATVI isn't among the 30 most popular stocks among hedge funds. ATVI was in 59 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 74 hedge funds in our database with ATVI holdings at the end of the previous quarter.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lone Pine Capital 2015 Q2 Investor Letter

We're going to view the key hedge fund action regarding Activision Blizzard, Inc. (NASDAQ:ATVI).

Hedge fund activity in Activision Blizzard, Inc. (NASDAQ:ATVI)

Heading into the first quarter of 2019, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. By comparison, 59 hedge funds held shares or bullish call options in ATVI a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ATVI_mar2019

The largest stake in Activision Blizzard, Inc. (NASDAQ:ATVI) was held by Lone Pine Capital, which reported holding $729.8 million worth of stock at the end of September. It was followed by Coatue Management with a $419.6 million position. Other investors bullish on the company included D E Shaw, Alkeon Capital Management, and Matrix Capital Management.

Since Activision Blizzard, Inc. (NASDAQ:ATVI) has faced a decline in interest from hedge fund managers, logic holds that there is a sect of hedge funds who sold off their positions entirely heading into Q3. It's worth mentioning that John Armitage's Egerton Capital Limited cut the largest stake of the 700 funds tracked by Insider Monkey, worth close to $623.7 million in stock. Robert Pitts's fund, Steadfast Capital Management, also dumped its stock, about $225.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 15 funds heading into Q3.

Let's also examine hedge fund activity in other stocks similar to Activision Blizzard, Inc. (NASDAQ:ATVI). These stocks are BCE Inc. (NYSE:BCE), Public Storage (NYSE:PSA), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and The Progressive Corporation (NYSE:PGR). This group of stocks' market caps are similar to ATVI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCE,16,319529,-1 PSA,18,841590,3 BBVA,4,234780,-2 PGR,48,2177558,3 Average,21.5,893364,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $893 million. That figure was $2411 million in ATVI's case. The Progressive Corporation (NYSE:PGR) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Activision Blizzard, Inc. (NASDAQ:ATVI) is more popular among hedge funds though several hedge funds dumped the stock in Q4. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately ATVI wasn't in this group. Hedge funds that bet on ATVI were disappointed as the stock lost 4.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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