Because hedge funds are often referred to as “the smart money,” we took a dive into researching and coming up with Money and Markets‘ list of six popular stocks held by hedge funds.
Investors live by the saying “follow the smart money.” Part of that includes knowing what the so-called “smart money,” like hedge funds, are investing in.
When you are first getting into the market, you may want to follow the trends of some of the wealthiest investors in the country.
What better way to do that than to know the most popular stocks held by hedge funds?
For this, we will briefly explain what hedge funds are, our methodology for finding these stocks and the six popular stocks held by hedge funds.
And when it comes to the biggest hedge funds, you’ve seen their chief executives and other representatives quoted often in financial news; names like Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world.
What is a Hedge Fund?
These are funds built by investors pooling their money together to put into various securities with the hopes of large capital gains.
Hedge funds aren’t as tightly regulated as mutual funds so they can use riskier strategies.
However, hedge funds are usually reserved for only wealthy investors because they come with higher fees and higher risks. Those fees include management fees of 1%-2%, as well as “performance fees” of up to 20% of the hedge fund’s profit.
That “performance fee” is an encouragement for a hedge fund manager to take greater risks to achieve higher profit.
How We Found the 6 Popular Stocks Held By Hedge Funds
To know what companies hedge funds are investing in, you can research their quarterly 13-F filings with the Securities and Exchange Commission.
However, we went a step further than sifting through hundreds of quarterly filings.
Hedge-fund tracker Whale Wisdom analyzes those 13-F filings and compiles them for you to show all the stocks held by hedge funds filing with the SEC. From there, we looked at the number of hedge funds that hold each company in their top 10 — by largest position.
We used that to find the six popular stocks held by hedge funds, according to the latest Q4 2019 13-F filings. So
6 Popular Stocks Held by Hedge Funds
1. Apple Inc.
The number of funds with the stock: 3,216.
The number of funds with the stock in the top 10 of their holdings: 1,771.
Percentage of funds moving it to the top 10 from the last quarter: +15.9%.
Apple Inc. (Nasdaq: AAPL) had a great 2019.
It’s share price jumped more than 114% from the start of 2019 to the end. That paid off massively for hedge funds keeping it in their portfolio.
Since the start of 2020, the stock jumped even more before the coronavirus started tinkering with the market, causing a correction in all three major indexes.
But because of its rise in 2019, more and more hedge funds decided Apple was a good bet for big gains. Its track record for strong growth and its transition to other revenue outlets, like subscription television, have set the stage for even more growth in 2020.
That’s why Apple Inc. is one of the six popular stocks held by hedge funds.
2. Microsoft Corp.
The number of funds with the stock: 3,298.
The number of funds with the stock in the top 10: 1,656.
Percentage of funds moving it to the top 10 from the last quarter: +6.36%.
The most popular stock among hedge funds is Microsoft Corp. (Nasdaq: MSFT).
It is held by 82 more hedge funds than Apple, and for good reason.
In 2019, shares of Microsoft jumped more than 64%. That growth was steady over the year with only a few blips. But it rebounded nicely even during those very small downturns.
Like Apple, Microsoft jumped even higher in the first quarter of 2020 but turned back slightly due to the coronavirus outbreak.
Regardless, Microsoft has a track record of beating earnings and revenue estimates on a quarterly basis. Another attractive feature for hedge funds is the value. Microsoft trades at around 22 times its forward earnings, making it a relative bargain for a company as big as it is — even after the share price’s meteoric rise the past year.
Solid growth and being a mega-cap bargain makes Microsoft Corp. one of the six popular stocks held by hedge funds.
3. Amazon.com Inc.
The number of funds with the stock: 2,899.
The number of funds with the stock in the top 10: 840.
Percentage of funds moving it to the top 10 from the last quarter: +3.58%.
Another stock hedge funds aren’t afraid to sink their money into is Amazon.com Inc. (Nasdaq: AMZN).
The online retailer only grew 26.5% and traded sideways for much of 2019, but that still translated to jumping nearly $400 per share over the year.
Amazon had more growth to start 2020, however, it did suffer a bit of a dip because of the coronavirus. But that dip was far less than Apple or Microsoft.
Hedge funds love Amazon because of its consistent growth amid very low margins. That means after Amazon is done investing its capital back into things like its cloud computing business, profits could be huge.
Being an ever-growing company makes Amazon.com Inc. one of the six popular stocks held by hedge funds.
4. JPMorgan Chase & Co.
The number of funds with the stock: 2,775.
The number of funds with the stock in the top 10: 746.
Percentage of funds moving it to the top 10 from the last quarter: +14.6%.
The most popular stock for hedge funds that isn’t a tech company is JPMorgan Chase & Co. (NYSE: JPM). And for good reason.
It is the largest bank in the U.S., so it gives hedge funds solid exposure to the financial sector.
In 2019, JPMorgan’s share price jumped by 47.2%. That share price is still a strong value as its 52-week high is only around $140 per share.
It actually grew faster than the S&P 500 Financial Sector SPDR ETF (NYSEARCA: XLF) — which only rose 38% in 2019. That makes JPMorgan’s growth better than the industry as a whole.
That faster growth along with its exposure to the financial sector makes JPMorgan Chase & Co. one of the six popular stocks held by hedge funds.
5. SPDR S&P 500 ETF Trust
The number of funds with the stock: 2,321.
The number of funds with the stock in the top 10: 701.
Percentage of funds moving it to the top 10 from the last quarter: +16.2%.
Hedge funds jumped on the bandwagon of the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) exchange-traded fund in the fourth quarter of 2019.
More than 16% of hedge funds moved the S&P 500-tracking ETF into their top 10 holdings during that time. Additionally, 10% of hedge funds added SPY to their arsenal during the quarter.
Just like the actual S&P 500, SPY had a great 2019. Its share price jumped more than 32% over the year.
The thing hedge funds love about SPY is it gives them exposure to the entire S&P 500 rather than buying all 500 stocks. With the benchmark index doing so well last year, it’s no surprise that more hedge funds added it to their portfolio.
Because of that exposure, the SPDR S&P 500 ETF is one of the six popular stocks held by hedge funds.
6. Alphabet Inc. (Google)
The number of funds with the stock: 2,750.
The number of funds with the stock in the top 10: 609.
Percentage of funds moving it to the top 10 from the last quarter: +13.2%.
The parent company of Google, Alphabet Inc. (Nasdaq: GOOG) is another favorite among hedge funds.
As those funds capitalize on the strong tech sector, Alphabet Inc. is an obvious selection. Its wide assortment of apps — like Gmail, Docs, Maps and YouTube — make it a big player in the tech space.
In 2019, Alphabet’s share price jumped 34.5%, constituting a $350-per-share increase. Like with other tech stocks, the company did see a slight dip due to coronavirus fears in February, Alphabet has proven to weather any storm with solid performance.
Hedge funds also like its market share in the online advertising business and cloud infrastructure.
Alphabet has a lot of growth avenues hedge funds love to see. That means the company will continue to give those funds solid gains for years to come.
That’s why Alphabet Inc. is one of the six popular stocks held by hedge funds.
So if you are looking for where the so-called “smart money” is, there you have it.
From tech to banking to ETFs, hedge funds use these stocks to make their clients money. They all have strong growth drivers and solid financials, making them the six popular stocks held by hedge funds.
Here’s a list of other popular stocks held by hedge funds and the number of funds that hold them:
- iShares S&P 500 Index ETF (NYSEARCA: IVV) — 1,808.
- Johnson & Johnson (NYSE: JNJ) — 2,865.
- Visa Inc. (NYSE: V) — 2,558.
- Facebook Inc. (Nasdaq: FB) — 2,560.
- Berkshire Hathaway (NYSE: BRK.B) — 2,550.
- The Walt Disney Co. (NYSE: DIS) — 2,725.
- Alibaba Group Holding Ltd. (NYSE: BABA) — 1,683.
- Mastercard Inc. (NYSE: MA) — 2,064.
- Proctor & Gamble Co. (NYSE: PG) — 2,608.
- Vanguard Total Stock Market ETF (NYSEARCA: VTI) — 1,463.
