It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Apple Inc. (NASDAQ:AAPL).
Is Apple Inc. (NASDAQ:AAPL) a good stock to buy right now? The best stock pickers are betting on the stock. The number of long hedge fund positions rose by 4 recently. Our calculations also showed that AAPL is among the 30 most popular stocks among hedge funds.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s take a peek at the recent hedge fund action encompassing Apple Inc. (NASDAQ:AAPL).
What have hedge funds been doing with Apple Inc. (NASDAQ:AAPL)?
At the end of the fourth quarter, a total of 116 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the second quarter of 2018. By comparison, 97 hedge funds held shares or bullish call options in AAPL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the largest position in Apple Inc. (NASDAQ:AAPL), worth close to $39.3702 billion, accounting for 21.5% of its total 13F portfolio. On Berkshire Hathaway’s heels is Fisher Asset Management, led by Ken Fisher, holding a $2.0138 billion position; 2.8% of its 13F portfolio is allocated to the stock. Other peers that are bullish contain Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Management.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Apple Inc. (NASDAQ:AAPL) headfirst. Renaissance Technologies, managed by Jim Simons, initiated the most outsized position in Apple Inc. (NASDAQ:AAPL). Renaissance Technologies had $435.4 million invested in the company at the end of the quarter. Jonathon Jacobson’s Highfields Capital Management also initiated a $157.7 million position during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Charles Lemonides’s Valueworks LLC, and Frank Brosens’s Taconic Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Apple Inc. (NASDAQ:AAPL) but similarly valued. These stocks are Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Alphabet Inc (NASDAQ:GOOG), and Berkshire Hathaway Inc. (NYSE:BRK-B). This group of stocks’ market valuations are similar to AAPL’s market valuation.
[table]
Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position
AMZN,168,19024781,18
GOOGL,146,12470388,9
GOOG,141,12831961,11
BRK-B,87,21379350,3
Average,135.5,16426620,10.25
[/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 135.5 hedge funds with bullish positions and the average amount invested in these stocks was $16427 million. That figure was $48320 million in AAPL’s case. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Berkshire Hathaway Inc. (NYSE:BRK-B) is the least popular one with only 87 bullish hedge fund positions. Apple Inc. (NASDAQ:AAPL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AMZN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
