Value Hedge Funds Dive Into Tech Stocks in Q1

Over the past few weeks, U.S. hedge funds have been busy filing their 13F reports with the SEC.

Any U.S.-based hedge fund with more than $100 million in assets under management is required to submit one of these reports listing the stocks of U.S. companies that it holds in its portfolio at the end of every calendar quarter.

While these reports do give us a great insight into holdings of some of the greatest money managers on the planet, they have their limitations. For example, only U.S.-listed stocks are included, and they do not list international equities or credit investments. There’s also no space given to cash holdings. What’s more, these reports only provide a snapshot of the portfolio at one particular point in time. They do not tell us when the positions were acquired or if they have been sold since the end of the quarter (13Fs are filed at least 45 days after the end of each calendar quarter).

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="13F trends” data-reactid=”20″>13F trends

Despite the above-listed drawbacks, 13Fs are a great starting point for further research. There are interesting trends that I have found while looking through the data of the most bought and sold stocks among funds during the first three months of 2020.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="By far, one of the most popular stocks among hedge funds was Facebook (NASDAQ:FB). Some big names built substantial positions in the social networking company over three months through the end of March. These included Seth Klarman (Trades, Portfolio), who invested around 5% of Baupost’s portfolio in the company for a holding of two million shares. Other investors who initiated new positions included Michael Burry, Glenn Greenberg (Trades, Portfolio) and Leon Cooperman (Trades, Portfolio). Lee Ainslie (Trades, Portfolio)’s Maverick Capital and Stephen Mandel’s Lone Pine added to already-substantial holdings in the company.” data-reactid=”22″>By far, one of the most popular stocks among hedge funds was Facebook (NASDAQ:FB). Some big names built substantial positions in the social networking company over three months through the end of March. These included Seth Klarman (Trades, Portfolio), who invested around 5% of Baupost’s portfolio in the company for a holding of two million shares. Other investors who initiated new positions included Michael Burry, Glenn Greenberg (Trades, Portfolio) and Leon Cooperman (Trades, Portfolio). Lee Ainslie (Trades, Portfolio)’s Maverick Capital and Stephen Mandel’s Lone Pine added to already-substantial holdings in the company.

Facebook stock has been one of the best performers in the S&P 500 over the past few weeks. Wall Street is expecting the company to report earnings growth of around 35% in fiscal 2021 after a contraction in fiscal 2020. The stock’s forward price-earnings ratio of 24 looks conservative to me based on this growth projection. It is up from around $140 in mid-March to nearly $240 at the time of the writing of this article.

Hedge funds were also big buyers of Amazon (NASDAQ:AMZN) in the first quarter of 2020. Once again, some interesting names decided to initiate a position in the online retail giant. Lone Pine Capital increased its position by 13%. Meanwhile, Daniel Loeb (Trades, Portfolio)’s Third Point, which is traditionally seen as a value investor, boosted its holding in the stock by more than 200%, giving the company a near 7% portfolio weight. Chris Hohn’s TCI Fund Management acquired nearly 6,000 shares and the Bill & Melinda Gates Foundation Trust bought 60,000 shares. In comparison to these firms’ overall portfolios, these positions aren’t particularly significant, but TCI is traditionally an activist value investor, while the Bill & Melinda Gates Foundation also invests with a value slant.

Facebook and Amazon were joined by Microsoft (NASDAQ:MSFT) in the list of the top stocks acquired by major hedge funds in the first three months of 2020. TCI Fund Management, Lone Pine and Maverick all added to large existing holdings.

Aside from these three tech giants, the other two companies in my list are Wells Fargo (NYSE:WFC) and Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).

These trends reveal where hedge funds believe there is the most value to be found in the current market. They seem to be concentrating their bets in tech stocks as well as well-known, undervalued blue chips.

Disclosure: The author owns shares in Berkshire Hathaway and Wells Fargo.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This article first appeared on GuruFocus.
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