Were Hedge Funds Right About Altaba Inc. (AABA)?

Reymerlyn Martin

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% 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' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Altaba Inc. (NASDAQ:AABA).

Altaba Inc. (NASDAQ:AABA) investors should pay attention to a decrease in hedge fund interest in recent months. AABA was in 73 hedge funds' portfolios at the end of December. There were 87 hedge funds in our database with AABA holdings at the end of the previous quarter. Our calculations also showed that AABA is among the 30 most popular stocks among hedge funds, ranking 24th.

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.

FARALLON CAPITAL
FARALLON CAPITAL

Let's take a peek at the fresh hedge fund action regarding Altaba Inc. (NASDAQ:AABA).

Hedge fund activity in Altaba Inc. (NASDAQ:AABA)

At the end of the fourth quarter, a total of 73 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in AABA over the last 14 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

AABA_mar2019
AABA_mar2019

The largest stake in Altaba Inc. (NASDAQ:AABA) was held by Farallon Capital, which reported holding $1599.6 million worth of stock at the end of September. It was followed by Elliott Management with a $1284.5 million position. Other investors bullish on the company included Owl Creek Asset Management, Element Capital Management, and HBK Investments.

Because Altaba Inc. (NASDAQ:AABA) has witnessed declining sentiment from hedge fund managers, it's safe to say that there were a few funds who sold off their positions entirely in the third quarter. At the top of the heap, Joshua Friedman and Mitchell Julis's Canyon Capital Advisors dumped the biggest position of all the hedgies followed by Insider Monkey, worth close to $480 million in stock. David Abrams's fund, Abrams Capital Management, also dropped its stock, about $256.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 14 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Altaba Inc. (NASDAQ:AABA) but similarly valued. We will take a look at American International Group Inc (NYSE:AIG), AFLAC Incorporated (NYSE:AFL), Energy Transfer L.P. (NYSE:ET), and Target Corporation (NYSE:TGT). This group of stocks' market values match AABA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIG,39,1852935,-2 AFL,27,861835,-2 ET,30,741381,8 TGT,40,1209924,-2 Average,34,1166519,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1167 million. That figure was $12595 million in AABA's case. Target Corporation (NYSE:TGT) is the most popular stock in this table. On the other hand AFLAC Incorporated (NYSE:AFL) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Altaba Inc. (NASDAQ:AABA) is more popular 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 AABA as the stock returned 27.1% and outperformed the market as well.

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

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