We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Yelp Inc (NYSE:YELP) and determine whether hedge funds skillfully traded this stock.
Yelp Inc (NYSE:YELP) was in 27 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 45. YELP investors should pay attention to an increase in enthusiasm from smart money of late. There were 25 hedge funds in our database with YELP holdings at the end of March. Our calculations also showed that YELP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Carlo Cannell
J. Carlo Cannell of Cannell Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's analyze the key hedge fund action regarding Yelp Inc (NYSE:YELP).
Hedge fund activity in Yelp Inc (NYSE:YELP)
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in YELP a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, D. E. Shaw's D E Shaw has the largest position in Yelp Inc (NYSE:YELP), worth close to $98 million, amounting to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $78.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Cliff Asness's AQR Capital Management, Renaissance Technologies and Chet Kapoor's Tenzing Global Investors. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Yelp Inc (NYSE:YELP), around 13.63% of its 13F portfolio. Cannell Capital is also relatively very bullish on the stock, dishing out 2.28 percent of its 13F equity portfolio to YELP.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Cannell Capital, managed by J. Carlo Cannell, established the largest position in Yelp Inc (NYSE:YELP). Cannell Capital had $6.1 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Jinghua Yan's TwinBeech Capital, Donald Sussman's Paloma Partners, and Parvinder Thiara's Athanor Capital.
Let's check out hedge fund activity in other stocks similar to Yelp Inc (NYSE:YELP). We will take a look at Upwork Inc. (NASDAQ:UPWK), Verra Mobility Corporation (NASDAQ:VRRM), Hilton Grand Vacations Inc. (NYSE:HGV), Hilltop Holdings Inc. (NYSE:HTH), 8x8, Inc. (NYSE:EGHT), Onto Innovation Inc. (NYSE:ONTO), and Compass Minerals International, Inc. (NYSE:CMP). This group of stocks' market valuations resemble YELP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UPWK,25,236015,3 VRRM,25,247110,2 HGV,30,554675,1 HTH,23,107835,8 EGHT,21,417819,1 ONTO,17,161796,6 CMP,18,62058,2 Average,22.7,255330,3.3 [/table]
As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $255 million. That figure was $381 million in YELP's case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Onto Innovation Inc. (NYSE:ONTO) is the least popular one with only 17 bullish hedge fund positions. Yelp Inc (NYSE:YELP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for YELP is 63.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately YELP wasn't nearly as popular as these 10 stocks and hedge funds that were betting on YELP were disappointed as the stock returned -14.6% during the same time 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 many of these stocks already outperformed the market so far this year.
