Written by: Leo Kolivakis
Arie Shapiro reports, Which Hedge Funds Got ‘Whale Rocked’ in October?:
“Today is the deadline for 13Fs, where funds of all kinds will disclose what stocks they bought and which ones they sold in the third quarter.
But this filing period is a bit different than others because the quarter ended just days before a rout in the market began: The Nasdaq plunged 9.2% in October, its largest monthly decline since November 2008, while the S&P 500 fell almost 7%.
And volatility hasn’t subsided since — Just look at what happened in the e-minis overnight (rallying 16 points last night only to reverse by ~33 handles, and now practically flat) or what’s been going in crude oil over the past month and a half, with WTI seeing virtually zero upticks in a straight slide from $77 to $55 per barrel.”
So what we may get is a proper look at who piled into some of the biggest pressure points of the market during the meltdown, for example the breakdown in the tech sector. What we won’t get is a more up-to-date view on who panic sold and/or who doubled and tripled down as the selloff deepened. That’ll have to wait until the next 13F season — unless the investor letters leak before then, of course.
We’ve received some insight into the October carnage from several TMT-heavy hedge funds, like Whale Rock, the $3 billion firm run by former Fidelity portfolio manager Alex Sacerdote, which saw its flagship fund plummet 11% during the month; meanwhile, the master fund at Light Street Capital, Glen Kacher’s $1.4 billion firm, fell more than 9%.
See the graphic below for a look at Whale Rock’s top holdings by market value as of June 30, which can be viewed via the FLNG function; the positions will be updated later today when the new 13F gets filed.
As you can see, three of the FAANGs topped the list (Amazon was 8.6% of the fund’s portfolio followed by Netflix 7.5% and Facebook 6.5%) while the rest of the top ten was littered with tech momentum names like Shopify, MongoDB, Nvidia, and Square, all of which are down many percentage points since the end of the third quarter.
I’ll be screening for which other funds potentially got “Whale Rocked,” which is a completely made-up term by me in a bid to understand who else may have gotten wrecked when tech turned south. Of course, this non-trademarked term only works well in the context of one month’s performance, as Whale Rock was still up for the year through October (up 4.7% vs S&P 500 up 1.4%), according to an investor document viewed by Bloomberg.
The keys will be to check who took a fat new stake or boosted their positions in some of the momentum names in the tech sector, many of which tend to be hedge fund hotels. On the flip side, I’ll also be curious to see who exited their positions in the worst-performing sectors (tech & communication services, consumer discretionary, energy and industrials) and rotated into more defensive ones like the utilities, consumer staples, or REITs, all of which outperformed since the end of the third quarter, as the graphic below shows.
13F Cheat Sheet
Here’s a list of names to watch with their respective share move quarter-to-date:
- Recent downward spirals: General Electric -24% (13F yesterday showed Bridgewater’s top new buy in the third quarter was GE with ~2 million shares), Goldman Sachs -8.6%
- The FAANGs: Netflix -21%, Amazon -19%, Apple -15%, Facebook -14%, Alphabet -13%
- Other megacap tech names: IBM -21%, Baidu -20%, Salesforce -17%, Texas Instruments -12%, Alibaba -11%
- Momentum: Roku -42%, GrubHub -38%, AMD -37%, World Wrestling -31%, Nvidia -29%, Match -28%, Spotify -27%, Square -27%, Snap -21%, Micron -16%, Shopify -16%
- Video games: Activision -37%, Electronic Arts -27%, Take-Two -22%
- Housing-related: Zillow -31%, Mohawk -30%, D.R. Horton -18, Lowe’s -17%, Masco -15%, Home Depot -14%, Lennar -12%
- Energy: Baker Hughes -30%, Marathon Oil -29%, Valero Energy -27%, Apache -26%, USO -25%, XLE -13%
- California utilities after the wildfires: PG&E -29% (13F out last night showed Baupost boosted their stake in the third quarter by 322%, or 14.5 million shares) and Edison International -18%
- Pot stocks: Aurora Cannabis -30%, Cronos -25%, Tilray -22%, Canopy Growth -21%
- And what went up? Tesla +28%, Red Hat +27% (bailed out by the IBM deal!), TripAdvisor +24%, Starbucks +19%, Twitter +14%. Walgreens +12%, Procter & Gamble +12%, McDonald’s +10%, CME Group +10%
It’s that time of the year again when people get a sneak peek into what top funds bought and sold during the last quarter with a 45-day lag. Before you get all excited, I warn you, many top funds got dinged in Q3 and many are still getting clobbered in Q4. These are brutal, BRUTAL markets as the rise in rates is starting to take a bite out of stocks and volatility is on the rise. If you didn’t read the macro environment right, you got killed picking stocks over the last six months.
For example, while the great money manager Stanley Druckenmiller (see interview at end of comment) was surprised big pharmaceutical shares took off in Q2 and have done well, I wasn’t because it’s all part of my macro thesis which I laid out at the beginning of year, namely, return to stability. And since the summer, I told my readers to get defensive and stay defensive.
What else did I notice? The ferocity of the moves lately is unbelievable which makes it very tough for large funds to trade in this environment. Large cap stocks are swinging like small cap stocks, it’s crazy out there and I know, I’m on markets every single day looking at these wild gyrations.
Let’s begin analyzing what top funds bought and sold in Q3 with some more articles. Svea Herbst-Bayliss and David Randall of Reuters report, Prominent managers loaded up on Apple before recent tumble:
“Several prominent investors put fresh money to work in Apple (AAPL) during the third quarter even as they sold out of other high-flying tech companies, betting the iPhone maker’s stock would keep rising as strong growth overshadowed rising trade tensions between the United States and China.
The purchases, which were revealed in securities filings on Wednesday, may be leaving large investors with steep losses if Apple continues its more than 15 percent decline for the month so far.
Mutual fund giant Fidelity added 7 million shares, bringing its total holdings to 110.9 million shares, regulatory filings and data from research firm Symmetric.io show. Janus Henderson Group added 3.3 million shares for a total of 20.8 million shares and J.P. Morgan Chase & Co boosted its holding to 42.7 million shares after adding 1.3 million.
Philippe Laffont’s Coatue Management made a big bet by raising his exposure by 938 percent to 884,321 shares while Chase Coleman’s Tiger Global Management put on a new position to own just over 1 million shares.
Despite the steep declines in Apple, some hedge fund managers said that they are continuing to add to shares in the company.
“We know it is not a Facebook or a Google with eye-popping growth but we’re not paying for that,” said Shawn Kravetz, founder of Esplanade Capital, at the Reuters Global Investment 2019 Outlook Summit in New York on Wednesday.
Kravetz, who added to his Apple position Wednesday morning, said investors like himself are attracted to the company’s compelling valuation compared to other Silicon Valley giants.
The declines in Apple may add to what is proving to be another difficult year for the hedge fund industry.
Overall, the average hedge fund dropped nearly 3 percent in October, the worst monthly loss since 2011, in large part due to over-exposures to the technology industry, according to Hedge Fund Research.
Given the increased volatility in the U.S. stock market, defensive-minded funds will likely post the strongest returns through the end of the calendar year, said Kenneth Heinz, president of HFR.
“Anticipating the market volatility which began in September and accelerated in October will continue into 2019, strategies positioned for this transitional market environment are likely to lead performance through year end,” he said.
Quarterly disclosures of hedge fund managers’ stock holdings in 13F filings with the U.S. Securities and Exchange Commission are one of the few public ways of tracking what the managers are selling and buying. But relying on the filings to develop an investment strategy comes with some risk because the disclosures are made 45 days after the end of each quarter and may not reflect current positions.
The moves into the shares of Apple came at a time when several prominent hedge funds were starting to shed their holdings of the FANG stocks – Facebook Inc (FB), Amazon.com Inc (AMZN), Netflix Inc (NFLX), and Google’s parent Alphabet Inc (GOOGL) – that had led the market higher over the last two years.
Jana Partners, for instance, sold all of its approximately 651,000 shares of Facebook and all of its approximately 44,000 shares of Alphabet Inc in the third quarter, according to securities filings. Third Point LLC sold all of its approximately 3 million shares of Facebook, a position which had made up about 4 percent of its prior portfolio.
Los Angeles-based asset manager TCW Group Inc sold all of its approximately 127,000 shares of Netflix during the same time period.”
So you read this and you notice a few things. Big hedge funds play big tech stocks because they need the liquidity to manage their risk and get in and out efficiently with few transaction costs.
As far as Coatue Management and Tiger Global, they added to Apple (AAPL[NGS] – $185.86 ) and the stock did fine in Q3 before getting clobbered during the nasty October selloff, the worst October since 2008
On Apple, I said as long as it holds above its 50-week moving average, I’d be long despite the October selloff and negative weekly MACD (click on image):
I don’t care if it’s Warren Buffett’s top position, I don’t care if the company will stop reporting unit sales (everyone knows they’ve been falling and will continue to fall), all I care about is that weekly chart above and it helps knowing they have more cash than they know what to do with, so expect buybacks to continue lending support to shares (not that I really put too much credence to the buyback bull).
Still, I expect a slowing global economy next year with high possibility of a recession, so it’s hard for me to be all excited about Apple from a fundamental point but if you notice, the company is moving aggressively into entertainment and other financial ventures which is positive.
All this to say, if I had a choice between owning Apple or Facebook here, I’d follow the Oracle of Omaha into Apple, no doubt about it (I never liked Facebook, I personally think it’s a waste of time and it’s definitely not a well-run company).
But the point of these quarterly comments on top funds’ activity is to show my readers there’s so much more to this market than FANG stocks or high-flying tech stocks like NVDIA (NVDA[NGS] – $144.70 ) which got killed on Friday (click on image):
On StockTwits, told my followers, don’t bother trying to play this chip stock on the long side, it broke below its 100-week moving average and the weekly MACD is negative, telling me even if there’s a bounce, it’s headed much lower.
But it’s a bit of crazy market and while some risk assets are getting clobbered, others might come back.
It’s still very weak and I’d be very careful here but you see how it bounced off its 200-week moving average? In the past, biotech shares came roaring back after such a selloff but the rise in rates is removing a lot of liquidity in markets.
Still, on Friday, biotech shares (XBI) rallied 2.5% that’s all it took to ignite many of the smaller biotech shares I track.
I noticed Joseph Edelman’s Perceptive Advisors, one of the best biotech funds, took a small position in this one as it got killed in Q3 but I don’t know what to make of today’s big pop.
Perceptive also made big money buying the dip in Solid Biosciences (SLDB[NGS] – $33.38 ) this year and added to its position in La Jolla Pharmaceuticals (LJPC[NSC] – $15.06 ) as shares declined in Q3. You can view Perceptive’s top holdings here but be warned, biotech isn’t for the faint of heart.
Anyway, I can literally ramble on for days about what top funds bought and sold but I will spare you the details. Zero Hedge did a good job going over 13-F summary here.
As always, take this stuff with a grain of salt and remember, even the “gurus” get it wrong, just ask Seth Klarman and others who got scorched this week on their PG&E (PCG[NYE] – $23.26 ) positions. Shares of that utility rallied 37% Friday but the damage is done (click on image):
I’ll end it there. Have fun looking at the third quarter activity of top funds listed below. The links take you straight to their top holdings and then click on the fourth column head, % chg, to see where they decreased (click once on % chg column head) and increased their holdings (click twice on % chg column head).
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