Hedge Funds Have Never Been This Bullish On Netflix, Inc. (NFLX)

Reymerlyn Martin

Sat, Jun 1, 2019, 8:53 AM

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

Netflix, Inc. (NASDAQ:NFLX) was in 96 hedge funds' portfolios at the end of the first quarter of 2019. NFLX has seen an increase in hedge fund interest in recent months. There were 83 hedge funds in our database with NFLX holdings at the end of the previous quarter. Overall hedge fund sentiment towards Netflix is at its all time high. Usually this is a bullish signal. Hedge fund sentiment towards Disney reached its all time high at the end of March and the stock returned nearly 20% since then.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

We're going to check out the key hedge fund action encompassing Netflix, Inc. (NASDAQ:NFLX).

What have hedge funds been doing with Netflix, Inc. (NASDAQ:NFLX)?

At Q1's end, a total of 96 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NFLX over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, SRS Investment Management, managed by Karthik Sarma, holds the largest position in Netflix, Inc. (NASDAQ:NFLX). SRS Investment Management has a $1.2709 billion position in the stock, comprising 28.6% of its 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $990.3 million call position; 0.5% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish contain Chase Coleman's Tiger Global Management LLC, David Goel and Paul Ferri's Matrix Capital Management and Andreas Halvorsen's Viking Global.

Now, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, established the most valuable call position in Netflix, Inc. (NASDAQ:NFLX). Point72 Asset Management had $183.3 million invested in the company at the end of the quarter. Dan Loeb's Third Point also made a $142.6 million investment in the stock during the quarter. The following funds were also among the new NFLX investors: Aaron Cowen's Suvretta Capital Management, Josh Donfeld and David Rogers's Castle Hook Partners, and Ryan Frick and Oliver Evans's Dorsal Capital Management.

Let's also examine hedge fund activity in other stocks similar to Netflix, Inc. (NASDAQ:NFLX). These stocks are Unilever N.V. (NYSE:UN), Unilever plc (NYSE:UL), BP plc (NYSE:BP), and Citigroup Inc. (NYSE:C). This group of stocks' market values match NFLX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UN,19,1413959,4 UL,13,396239,0 BP,29,1139916,-5 C,87,9189925,-3 Average,37,3035010,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $3035 million. That figure was $9396 million in NFLX's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand Unilever plc (NYSE:UL) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Netflix, Inc. (NASDAQ:NFLX) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 2.2% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately NFLX wasn't nearly as successful as these 20 stocks and hedge funds that were betting on NFLX were disappointed as the stock returned -1.3% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as 13 of these stocks already outperformed the market this year.

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

Related Content