Were Hedge Funds Right About Facebook Inc (FB)?

·6 min read

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Facebook Inc (NASDAQ:FB) in this article.

Facebook Inc (NASDAQ:FB) was in 257 hedge funds' portfolios at the end of March. The all time high for this statistic was previously 242. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. FB has seen an increase in enthusiasm from smart money recently. There were 242 hedge funds in our database with FB positions at the end of the fourth quarter. Our calculations also showed that FB ranked #1 among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Today there are plenty of signals stock traders put to use to assess their stock investments. A couple of the most innovative signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top fund managers can beat the S&P 500 by a very impressive amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Masayoshi Son SB Management
Masayoshi Son SB Management

Masayoshi Son of SB 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 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. Keeping this in mind we're going to take a glance at the latest hedge fund action encompassing Facebook Inc (NASDAQ:FB).

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

At the end of the first quarter, a total of 257 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards FB over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FB A Good Stock To Buy?
Is FB A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Facebook Inc (NASDAQ:FB), with a stake worth $3364.9 million reported as of the end of March. Trailing Citadel Investment Group was SB Management, which amassed a stake valued at $3181.8 million. Eagle Capital Management, Fundsmith LLP, and Lone Pine 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 Immersion Capital allocated the biggest weight to Facebook Inc (NASDAQ:FB), around 32.87% of its 13F portfolio. Arrow Capital Management is also relatively very bullish on the stock, designating 26.5 percent of its 13F equity portfolio to FB.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Luxor Capital Group, managed by Christian Leone, initiated the most valuable call position in Facebook Inc (NASDAQ:FB). Luxor Capital Group had $674.3 million invested in the company at the end of the quarter. Chris Rokos's Rokos Capital Management also made a $286 million investment in the stock during the quarter. The following funds were also among the new FB investors: Robert Pitts's Steadfast Capital Management, Gabriel Plotkin's Melvin Capital Management, and Michael Burry's Scion Asset Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Facebook Inc (NASDAQ:FB) but similarly valued. These stocks are Tesla Inc. (NASDAQ:TSLA), Alibaba Group Holding Limited (NYSE:BABA), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), and Johnson & Johnson (NYSE:JNJ). This group of stocks' market caps match FB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSLA,62,10013166,-6 BABA,135,15497689,-21 TSM,76,10870661,4 BRK-B,111,19880791,1 JPM,111,5253689,-1 V,164,26588103,-2 JNJ,81,6913373,0 Average,105.7,13573925,-3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 105.7 hedge funds with bullish positions and the average amount invested in these stocks was $13574 million. That figure was $40967 million in FB's case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 62 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our overall hedge fund sentiment score for FB is 100. 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 FB as the stock returned 23.4% 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.

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