Were Hedge Funds Right About Alibaba Group Holding Limited (BABA)?

Insider Monkey Staff

Hedge fund managers like Andreas Halvorsen, Chase Coleman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Alibaba Group Holding Limited (NYSE:BABA).

Alibaba Group Holding Limited (NYSE:BABA) has seen a decrease in hedge fund interest lately. However, our calculations still shows that BABA is among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Andread Halvorsen Viking Global Investor Letter

Let's go over the key hedge fund action surrounding Alibaba Group Holding Limited (NYSE:BABA).

Hedge fund activity in Alibaba Group Holding Limited (NYSE:BABA)

Heading into the first quarter of 2019, a total of 113 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2018. On the other hand, there were a total of 111 hedge funds with a bullish position in BABA at the beginning of 2018. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BABA Hedge Fund Sentiment February 2019

More specifically, Fisher Asset Management was the largest shareholder of Alibaba Group Holding Limited (NYSE:BABA), with a stake worth $1574.1 million reported as of the end of September. Trailing Fisher Asset Management was Viking Global, which amassed a stake valued at $1396 million. Citadel Investment Group, Lone Pine Capital, and Coatue Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Alibaba Group Holding Limited (NYSE:BABA) has witnessed a decline in interest from the smart money, it's safe to say that there is a sect of hedgies who sold off their positions entirely last quarter. At the top of the heap, Dan Loeb's Third Point cut the biggest position of the 700 funds monitored by Insider Monkey, comprising about $666.5 million in stock, and Gabriel Plotkin's Melvin Capital Management was right behind this move, as the fund sold off about $295.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 14 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). We will take a look at Johnson & Johnson (NYSE:JNJ), JPMorgan Chase & Co. (NYSE:JPM), Visa Inc (NYSE:V), and Exxon Mobil Corporation (NYSE:XOM). All of these stocks' market caps are closest to BABA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JNJ,73,5212191,10 JPM,101,10016959,2 V,128,13066923,16 XOM,53,1613920,0 Average,88.75,7477498,7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 88.75 hedge funds with bullish positions and the average amount invested in these stocks was $7477 million. That figure was $11471 million in BABA's case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 53 bullish hedge fund positions. Alibaba Group Holding Limited (NYSE:BABA) is not the most popular stock in this group but it is still one of the 15 most popular stocks among hedge funds. 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. Hedge funds were also right about betting on Alibaba as the stock returned 32% and outperformed the market as well.

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