Apple has been one of the big favorites among the hedge fund set for several years now. And it still enjoys the largest dollar support among all tech, media and telecom, or TMT, stocks, with more than $22 billion of hedge fund capital invested in the maker of the iPhones and iPads at the end of the second quarter. This sizable number isnt surprising, given that Apple has the largest market capitalization of all stocks.
However, if you dig down a bit, Cupertino, Californiabased Apple is not so wildly popular among the hedge fund set as this aggregate position may indicate.
For one thing, the $22 billion only works out to a little more than 3 percent of Apples total market value. In fact, only ten hedge funds made new investments in Apple in the second quarter, although an additional 79 added to existing positions. And 21 funds fully exited the stock.
In fact, a total of 111 TMT companies received more new investors in the quarter ending June 30 than did Apple, according to an analysis created for Institutional Investor by New Yorkbased Novus, a research and analytics firm. Novus ranks TMT stocks that were recipients of the largest number of new hedge fund investors, as well as stocks that suffered the largest number of full exits by hedge funds at the end of the second quarter.
The ranking provides a kind of map to hedge fund interest in various kinds of tech stocks during a stretch immediately preceding a month of great market stress. This analysis of hedge fund holdings in tech is the third part of a four-part series.
Also from this series:
- Tech Stocks on the Edge of a Nervous Breakdown
- Hedge Funds and Tech Stocks: A Tighter Focus, a Wider Search
- Hedge Funds and Tech Stocks: The Allure of Private Investments
- Hedge Funds and Tech Stocks: Tiger Global's Commitment to Tech
A large number of top ten firms that received the most new investors were involved in some sort of merger deal or spin-off. This underscores the huge consolidation that the TMT world is undergoing.
Hedge funds that mostly specialize in event-driven and long-short strategies are among those that aggressively moved into these stocks in the second quarter.
However, many of the victims of larger exits read like a Whos Who of yesterdays winners, including AOL, Micron Technology, Applied Materials and Yahoo.
Two companies that were the two biggest recipients of new investors Broadcom, the Irvine, California, maker of chips for the wireless industry, and New York cable giant Time Warner Cable also ranked among the ten firms that saw the greatest number of hedge funds exiting their stocks.
Thats because they are both, at least in part, arbitrage investments in that the two companies are currently involved in mergers that havent yet closed. In May Broadcom agreed to be acquired by San Jose, California and Singapore-based Avago Technologies in a cash and stock deal. The deal is expected to close in the first quarter of 2016. Avago is tied for seventh among those firms with the largest number of new investors.
Also in May, Time Warner Cable announced its merger with St. Louisbased Charter Communications in a cash and stock deal. Charter, in turn, ties for No. 10 among companies with the most new investors.
Altera Corp., headquartered in Roseland, New Jersey, the recipient of the fourth-largest number of new hedge fund investors in the second quarter, with 29, is also an arbitrage play. The chipmaker agreed to be acquired on June 1 by Santa Clara, Californiabased Intel Corp.
One prominent long-short manager who gravitates to TMT stocks notes that a number of these high-profile companies, such as chipmakers, operate in yesterdays technology or media, whereas many investors move into new software and Internet-driven companies.
Companies such as Charter and Time Warner Cable are deemed by some to be casualties of the trend among younger Americans of watching movies and TV on tablets, computers, phones and other devices at the expense of pricey cable packages. But many hedge funds are playing these stocks as merger, consolidation plays. Others see them as big beneficiaries of the expanding demand for broadband services, thanks to the surge in popularity in Netflix and other broadband guzzlers.
In any case, altogether 47 hedge funds initiated investments in Broadcom in the second quarter, whereas 24 fully bailed on the stock. Nearly the latter number of funds added as subtracted from existing positions.
Among the largest new investors in the stock (in order of investment size): Pentwater Capital Management, the Evanston, Illinois, event-driven firm started by former Deephaven Capital Management trader Matthew Halbower; San Franciscobased Farallon Capital Management, headed by Andrew Spokes; Philippe Laffonts New Yorkbased Coatue Management; John Paulsons New Yorkbased Paulson & Co.; Jamie Dinans New Yorkbased York Capital Management Global Advisors; and Frank Brosens New Yorkbased Taconic Capital Advisors.
Among those that completely exited the stock: O. Andreas Halvorsens Greenwich, Connecticutbased Viking Global Investors and Jason Karps New Yorkbased Tourbillon Capital Partners.
Since the end of the second quarter, the stock has been up a little more than 1 percent, clearly weathering the market storm. During the same period, the Standard & Poors 500 has been down nearly 6 percent.
Time Warner Cable welcomed 37 new hedge funds but said good-bye to 24. Whats more, just slightly more shareholders reduced their position as added to existing stakes. The companys biggest new shareholders included New Yorkbased Senator Investment Group, headed by Douglas Silverman and Alexander Klabin; Barry Rosensteins New Yorkbased Jana Partners; Farallon; and Robert Citrones Norwalk, Connecticutbased Discovery Capital Management.
Those that fully bailed on the stock were led by New Yorkbased Glenview Capital Management, headed by Larry Robbins.
The sixth-largest recipient of new money was San Jose, Californiabased online auction company eBay, which also was partially an arbitrage play, since it was spinning off its PayPal unit, completed in mid-July. Dmitry Balyasnys Chicago-based Balyasny Asset Management and Coatue were the two largest new investors, with the former counting the company as its fifth-largest position now.
Two other companies with the most new investors are targets of activists or industry rivals, notably cell phone provider T-Mobile, a unit of Bonn, Germanybased Deutsche Telekom, and San Diegos wireless telecom giant Qualcomm.
Of those companies not currently involved in a pending merger, the biggest recipients of new investors are companies offering newer types of technology.
For example, San Francisco cloud computer company Salesforce.com had 31 new investors, versus just six fully exiting. The largest new investors are Coatue and James Simons East Setauket, New Yorkbased Renaissance Technologies. However, the largest wagers in the stock in the second quarter were made by a number of firms that previously had tiny stakes, including Kenneth Griffins Chicago-based Citadel, Israel Englanders New Yorkbased Millennium Management and Balyasny.
Salesforce stock mostly broke even after the end of June, thanks in large part to a surge in its price on Tuesday.
San Franciscos Fitbit, which makes wearable devices that monitor physical activity and sleep patterns, ranks fifth, with 28 new investors. It only went public on June 17 at $20 per share. Its stock ended the second quarter at $38.23 and peaked at a little more than $51, before tumbling roughly 40 percent in the market sell-off. On Tuesday the stock rebounded by more than 11 percent, thanks to an upgrade from Morgan Stanley. Its largest investor is New Yorkbased Blue Ridge Capital, headed by Tiger Cub John Griffin.
Other top holders have small positions in the stock relative to their respective portfolios: New Yorkbased Tiger Global Management, founded by Charles (Chase) Coleman III, and Daniel Bentons Rye Brook, New Yorkbased Andor Capital Management.
Next week well look at the surge in hedge fund investments of private tech and Internet companies.