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Were Hedge Funds Right About Souring On Uber Technologies, Inc. (UBER)?

Nina Todic

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 35% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Uber Technologies, Inc. (NYSE:UBER).

Is Uber Technologies, Inc. (NYSE:UBER) a bargain? The smart money is becoming less hopeful. The number of bullish hedge fund positions went down by 11 lately. Our calculations also showed that UBER isn't among the 30 most popular stocks among hedge funds (see the video below for second quarter's top hedge fund stocks). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26082" align="aligncenter" width="466"] Andreas Halvorsen of Viking Global[/caption]

Andreas Halvorsen

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We're going to go over the key hedge fund action encompassing Uber Technologies, Inc. (NYSE:UBER).

Hedge fund activity in Uber Technologies, Inc. (NYSE:UBER)

At the end of the third quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in UBER over the last 17 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with UBER Positions

Among these funds, Viking Global held the most valuable stake in Uber Technologies, Inc. (NYSE:UBER), which was worth $441.8 million at the end of the third quarter. On the second spot was Altimeter Capital Management which amassed $426.6 million worth of shares. Hillhouse Capital Management, Coatue Management, and Glade Brook Capital Partners 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 Hoplite Capital Management allocated the biggest weight to Uber Technologies, Inc. (NYSE:UBER), around 100% of its portfolio. Glade Brook Capital Partners is also relatively very bullish on the stock, setting aside 67.08 percent of its 13F equity portfolio to UBER.

Judging by the fact that Uber Technologies, Inc. (NYSE:UBER) has witnessed falling interest from hedge fund managers, it's easy to see that there exists a select few fund managers that slashed their positions entirely last quarter. At the top of the heap, Anand Parekh's Alyeska Investment Group dropped the biggest investment of the 750 funds monitored by Insider Monkey, totaling about $133.2 million in stock, and Josh Resnick's Jericho Capital Asset Management was right behind this move, as the fund cut about $92.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 11 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Uber Technologies, Inc. (NYSE:UBER) but similarly valued. We will take a look at Intercontinental Exchange Inc (NYSE:ICE), The Sherwin-Williams Company (NYSE:SHW), Marsh & McLennan Companies, Inc. (NYSE:MMC), and Illinois Tool Works Inc. (NYSE:ITW). This group of stocks' market caps resemble UBER's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ICE,43,2290732,8 SHW,45,1587764,5 MMC,26,579695,-3 ITW,28,335340,0 Average,35.5,1198383,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1198 million. That figure was $3397 million in UBER's case. The Sherwin-Williams Company (NYSE:SHW) is the most popular stock in this table. On the other hand Marsh & McLennan Companies, Inc. (NYSE:MMC) is the least popular one with only 26 bullish hedge fund positions. Uber Technologies, Inc. (NYSE:UBER) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately UBER wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UBER were disappointed as the stock returned -3% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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