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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Trade Desk, Inc. (NASDAQ:TTD).
The Trade Desk, Inc. (NASDAQ:TTD) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 35 hedge funds' portfolios at the end of March. Our calculations also showed that TTD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare TTD to other stocks including Rockwell Automation Inc. (NYSE:ROK), Delta Air Lines, Inc. (NYSE:DAL), and Nutrien Ltd. (NYSE:NTR) to get a better sense of its popularity.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Cathie Wood of ARK Investment Management
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 battery 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. With all of this in mind let's check out the new hedge fund action encompassing The Trade Desk, Inc. (NASDAQ:TTD).
Do Hedge Funds Think TTD Is A Good Stock To Buy Now?
At the end of March, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in TTD a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of The Trade Desk, Inc. (NASDAQ:TTD), with a stake worth $321.1 million reported as of the end of March. Trailing Citadel Investment Group was Alkeon Capital Management, which amassed a stake valued at $260.7 million. Zevenbergen Capital Investments, ARK Investment Management, and D E Shaw 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 Kamunting Street Capital allocated the biggest weight to The Trade Desk, Inc. (NASDAQ:TTD), around 5.14% of its 13F portfolio. Zevenbergen Capital Investments is also relatively very bullish on the stock, designating 4.72 percent of its 13F equity portfolio to TTD.
Due to the fact that The Trade Desk, Inc. (NASDAQ:TTD) has witnessed bearish sentiment from hedge fund managers, logic holds that there were a few money managers that slashed their full holdings by the end of the first quarter. At the top of the heap, Matthew Hulsizer's PEAK6 Capital Management sold off the biggest investment of the 750 funds monitored by Insider Monkey, worth close to $11.5 million in stock, and Dipak Patel's Alight Capital was right behind this move, as the fund cut about $1.6 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Trade Desk, Inc. (NASDAQ:TTD) but similarly valued. We will take a look at Rockwell Automation Inc. (NYSE:ROK), Delta Air Lines, Inc. (NYSE:DAL), Nutrien Ltd. (NYSE:NTR), Xilinx, Inc. (NASDAQ:XLNX), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Public Service Enterprise Group Incorporated (NYSE:PEG), and Chunghwa Telecom Co., Ltd (NYSE:CHT). This group of stocks' market caps match TTD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROK,26,442334,-9 DAL,50,1099712,-8 NTR,33,895159,8 XLNX,57,3581332,-9 IBKR,31,1456604,3 PEG,24,287434,-4 CHT,3,153173,-2 Average,32,1130821,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1131 million. That figure was $813 million in TTD's case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 3 bullish hedge fund positions. The Trade Desk, Inc. (NASDAQ:TTD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TTD is 64.6. 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 gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Hedge funds were also right about betting on TTD as the stock returned 16.7% since the end of Q1 (through 6/25) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.