Hedge Funds Started Cashing Out Of Netflix, Inc. (NFLX)

Reymerlyn Martin

In this article we will take a look at whether hedge funds think Netflix, Inc. (NASDAQ:NFLX) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Netflix, Inc. (NASDAQ:NFLX) a buy, sell, or hold? The smart money is becoming less confident. The number of long hedge fund positions were trimmed by 5 lately. Our calculations also showed that NFLX is still among the 30 most popular stocks among hedge funds (click for Q1 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.

To most investors, hedge funds are seen as unimportant, old financial tools of years past. While there are over 8000 funds with their doors open today, We choose to focus on the elite of this club, approximately 850 funds. These hedge fund managers handle the majority of the smart money's total capital, and by shadowing their matchless investments, Insider Monkey has unearthed numerous investment strategies that have historically outstripped the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_745223" align="aligncenter" width="400"] Daniel Sundheim of D1 Capital Partners[/caption]

Daniel Sundheim D1 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a glance at the latest hedge fund action regarding Netflix, Inc. (NASDAQ:NFLX).

How have hedgies been trading Netflix, Inc. (NASDAQ:NFLX)?

Heading into the second quarter of 2020, a total of 109 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 96 hedge funds with a bullish position in NFLX a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, SRS Investment Management held the most valuable stake in Netflix, Inc. (NASDAQ:NFLX), which was worth $1357.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $1218.4 million worth of shares. D1 Capital Partners, Viking Global, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SRS Investment Management allocated the biggest weight to Netflix, Inc. (NASDAQ:NFLX), around 29.49% of its 13F portfolio. Matrix Capital Management is also relatively very bullish on the stock, dishing out 19.2 percent of its 13F equity portfolio to NFLX.

Due to the fact that Netflix, Inc. (NASDAQ:NFLX) has faced declining sentiment from the smart money, we can see that there exists a select few hedgies that decided to sell off their full holdings last quarter. It's worth mentioning that Ryan Frick and Oliver Evans's Dorsal Capital Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, comprising close to $72 million in stock. Robert Pitts's fund, Steadfast Capital Management, also dropped its stock, about $60.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Netflix, Inc. (NASDAQ:NFLX) but similarly valued. We will take a look at NVIDIA Corporation (NASDAQ:NVDA), Exxon Mobil Corporation (NYSE:XOM), Comcast Corporation (NASDAQ:CMCSA), and China Mobile Limited (NYSE:CHL). This group of stocks' market valuations resemble NFLX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVDA,95,4127764,16 XOM,65,1295305,2 CMCSA,83,5538665,-4 CHL,11,449753,-1 Average,63.5,2852872,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.5 hedge funds with bullish positions and the average amount invested in these stocks was $2853 million. That figure was $13648 million in NFLX's case. NVIDIA Corporation (NASDAQ:NVDA) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 11 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. Unfortunately NFLX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NFLX were disappointed as the stock returned 14.3% during the second quarter (through May 22nd) 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 most of these stocks already outperformed the market in 2020.

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

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