According to GuruFocus data, the single most-bought tech stock by Premium gurus in the second quarter of 2022 was Facebook owner Meta Platforms (META, Financial). During the quarter, there were 28 gurus who either added to existing positions or initiated new holdings in Meta. Another popular guru buy was The Walt Disney Co. (DIS, Financial).
The sudden bullishness on Meta is interesting because the stock has declined by around 50% year to date as investors have become worried about the company's direction, slowing user growth and advertising spend growth on its platforms. A large number of hedge funds were adding to their positions in Meta during the quarter, but notably, most of the famously tech-focused Tiger Cub hedge funds made significant increases to their positions in the stock even as they sold other tech stocks.
Tiger Cubs love Meta
The Tiger Cub funds, i.e. those funds founded by the students of legendary hedge fund manager Julian Robertson (Trades, Portfolio), have become known in the hedge fund world for their aggressive bets on technology companies and their outstanding track records over the past couple of decades. Most were founded around the turn of the millennium, when their managers launched their firms following the bursting of the dot-com bubble.
Almost all of this group of funds have suffered significant losses in their public equity portfolios during the first half of 2022. Most have reduced their tech holdings as a result. However, for the most part, it doesn't seem as if this hedge fund group has been reducing Meta. In fact, it's just the opposite. They have been some of the most avid buyers of Meta.
This data comes from their quarterly 13F reports, which are backward-looking reports and give us a snapshot into a firm's publicly-listed U.S. equity portfolio as of the quarter's end. Investors should note that these reports do not include other types of securities, such as non-U.S.-listed stocks, bonds, etc. Moreover, since they are only a snaphsot of the quarter's end, it's possible the gurus in question have already made changes to the stock holdings as of this writing.
Nevertheless, they do provide a great indicator of hedge fund sentiment, and the very fact that one group of incredibly successful technology-focused hedge funds have been selling other stocks and building their positions in Meta is incredibly notable. With their vast wealth and experience as investors in the tech sector, that might be worth paying attention to.
Looking through the aggregate trading data of hedge funds over the past seven months, technology has fallen out of favor with hedge funds just as much as with the broader market. While most funds still do have a significant allocation towards tech stocks, there has been a notable shift away from the sector.
Hedge funds as a group are not really value or growth investors. They are momentum investors. They invest in stocks that they think are going to generate positive returns. If a company is unlikely to generate positive returns over the next 12 months or so, they just won't invest.
That may explain why tech has fallen out of favor. If the sector is going to continue to struggle to move higher in the face of rising interest rates and higher inflation, it doesn't make sense to remain invested for the hedge fund sector.
Investors with a longer-term view might have a different approach to investing in this industry. Still, I think it is notable that of all the companies in the technology sector, Meta has come out as the most favored among large hedge funds this year. The stock might not have momentum, but clearly these successful investors believe that there is something in the business model worth buying into.
An activist arrives at Disney
Another company that was incredibly popular with hedge funds in the second quarter was The Walt Disney Co. This is another stock that has seen a significant decline in its market value over the past couple of months. There were 21 Premium gurus buying Disney shares in the second quarter.
The stock has fallen from a high of nearly $200 per share at the beginning of 2021, to around $120 per share at the time of writing. Hedge funds appear to be capitalizing on this decline.
Names such as Third Point and Appaloosa Management were building positions in the second quarter, as were Tiger Cub funds such as Viking Global Investments.
Third Point, managed by Dan Loeb, does have an activist mentality, and that is on the show and Disney. The hedge fund manager has sent a letter to the company CEO requesting a change to the board of directors, more share repurchases and the possible sale or spinoff of the ESPN sports network. Only time will tell whether or not the company decides to follow this advice and unlock value for investors.