In this article, we discuss the 15 important stock picks of major hedge funds in 2021. If you want to skip our detailed analysis of these stocks, go directly to the 5 Important Stock Picks of Major Hedge Funds in 2021.
Strong returns and a shift towards alternative assets have helped hedge funds generate positive inflows in 2021. Hedge funds saw a positive inflow of money for the first time in three years, data from capital market company Preqin reveals. In the first three quarters of 2021, hedge funds attracted inflows of close to $41 billion, compared to outflows of $97 billion and $44 billion in 2019 and 2020. On average, hedge funds gained close to 14% in 2021, continuing an impressive run of averaging double digit gains to investors for the third successive year.
Secret Behind the Success of Hedge Funds in 2021
Benjamin Crawford, a senior executive at data firm BarclayHedge, told news agency Reuters in December that diversification was one of the main reasons behind this solid performance. According to Crawford, investors were choosing hedge funds for the purposes of diversification as inflation concerns increased. Hedge funds are generally famous for shielding assets from inflation. Preqin data shows that event-driven hedge fund investments performed slightly better than equity-driven strategies at the market.
Some of the most important stocks picks of major hedge funds in 2021 include Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL). These and other hedge fund favorites are discussed in detail below.
The companies listed below were picked from a database of 867 hedge funds maintained by Insider Monkey. The stocks that featured among the Top 30 Most Popular Hedge Fund Picks over the first three quarters of the year, available here, here, and here, were identified. Only those firms that have remained in the 30 most popular stocks among hedge funds for all three quarters were selected and sorted based on their gains over the past year.
The analyst ratings and business fundamentals of each company are also discussed to provide readers with some additional context for their investment choices.
The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey.
Important Stock Picks of Major Hedge Funds in 2021
15. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 146
Gain in Share Price Over Past Year as of January 4: 6.6%
Even though Mastercard Incorporated (NYSE:MA) stock has not registered a significant gain in share price over the past year, there are other benefits to owning shares in the firm that seem to have benefited investors. For example, at the end of November, Mastercard Incorporated (NYSE:MA) announced a quarterly dividend of $0.49 per share, an increase of over 11% compared to the previous dividend of $0.44 per share. Mastercard Incorporated (NYSE:MA) has increased dividend payouts consistently for the last ten years.
In November, UBS analyst Rayna Kumar had initiated coverage of Mastercard Incorporated (NYSE:MA) stock with a Buy rating and a price target of $448. The analyst underlined that the largest growth opportunities for Mastercard Incorporated (NYSE:MA) in the coming months were in markets in Latin America and Asia Pacific amid the return of cross-border travel.
This sentiment is shared by Virginia-based investment firm Akre Capital Management, a leading shareholder in Mastercard Incorporated (NYSE:MA) with 5.8 million shares worth more than $2 billion.
Just like Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL), Mastercard Incorporated (NYSE:MA) is one of the stocks that elite investors are buying.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and Mastercard Incorporated (NYSE:MA) was one of them. Here is what the fund said:
“While consumers resumed much of their spending by summer, what and how they used their Visas and Mastercards changed. For obvious reasons, people shifted to contactless payments—one of the Covid-era changes we think is permanent—and replaced travel purchases with online shopping and food delivery. Consumers spent more on their debit cards and less on their credit cards; Visa and Mastercard make more per transaction on the latter. They also make more on cross-border transactions that come mostly from international travel, which ground to a halt early in the pandemic. Visa’s and Mastercard’s earnings per share fell by 7% and 16%, respectively, compared to their usual mid-teens growth. We’re not too worried, and we think they’ll catch up nicely in the post-vaccine world. Visa’s stock returned 17.1% and Mastercard’s 20.2%.”
14. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 242
Gain in Share Price Over Past Year as of January 4: 4.8%
Amazon.com, Inc. (NASDAQ:AMZN) stock is the only big tech giant that has failed to excite investors with share price gains in the past year. However, for shred investors, in the midst of a “wild” tech rally, this performance has placed Amazon.com, Inc. (NASDAQ:AMZN) in a unique position. According to Monness Crespi analyst Brian White, the company is on track to be “one of the biggest beneficiaries of accelerated digital transformation”. The analyst has a Buy rating on Amazon.com, Inc. (NASDAQ:AMZN) stock with a price target of $4,500.
One of the Amazon.com, Inc. (NASDAQ:AMZN) services that may help the company register explosive growth is AWS, the cloud computing platform. AWS is already available in 26 different countries and offers over 200 services, serving millions of customers. Plans to expand in the IoT and space frontiers will further boost this subsidiary of Amazon.com, Inc. (NASDAQ:AMZN).
Top hedge funds recognize the true potential of the stock and have doubled down on their bullish bets on the ecommerce giant. Chicago-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc. (NASDAQ:AMZN) with 3.9 million shares worth more than $12.8 billion.
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“Amazon (AMZN):We sold our last remaining stake in Amazon this quarter. Amazon was our longest-running investment holding, after having originally purchasing it at the inception of Hayden in 2014, at a price of ~$317.
I gave some details of how Amazon has progressed over these past 6.5 years in last year’s Q2 2020 letter, which partners can find here (LINK). The company has executed amazingly well over this tenure, with revenues up ~3.3x and since our initial purchase, and reported operating income up ~30x over that period.
Generally, I believe there are three reasons to sell an investment:1) we recognize our initial thesis is wrong (sell out as quick as possible), 2) we have a significantly higher returning opportunity to redeploy the capital into (sell-down to fund the new investment), or 3) the company is maturing and hitting the top part of it’s S-curve / business lifecycle, so the business has fewer places to reinvest its capital internally. As such, the future returns will likely be lower than the past. This investment thus becomes a “source of capital” in the future, as we fund earlier-stage investment opportunities.
In the case of Amazon, we decided to sell due to the third scenario. I’m sure Amazon will continue to generate value for shareholders and continue to keep pace with the broader technology sector. However, I’m just not confident it’s as attractive an investment as when we first invested.
With ~51% of US households having an Amazon Prime account (and with very low churn), each of these households continuing to increase their annual spend with Amazon, and few / no real competitors in sight, Amazon is a dominant force that will only continue to accrue value as consumers continue to move from offline to online purchases for their everyday needs. Likewise, the “cash-flow machine” of Amazon Web Services is in a similar position of strength, with AWS now having ~32% market share and continuing to grow at +30% y/y. Because of this, I think Amazon is probably one of the safest investments in the technology sector today.
So why did we decide to sell the investment then? Simply put, Amazon is …”read the entire letter here]
13. Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Holders: 196
Gain in Share Price Over Past Year as of January 4: 13.1%
2021 was supposed to be a rebound year for travel stocks like Booking Holdings Inc. (NASDAQ:BKNG). Even though travel demand did rebound for large parts of the year, the uncertainty surrounding the reopening of the economy and the rise of new virus variants also affected the overall performance of travel firms. Despite these hurdles, Booking Holdings Inc. (NASDAQ:BKNG) beat market estimates on earnings per share and revenue for the third quarter by $4.67 and $390 million, respectively.
Booking Holdings Inc. (NASDAQ:BKNG) has also been investing for growth. In late November, Booking Holdings Inc. (NASDAQ:BKNG) announced that it had agreed to purchase global flight booking provider Etraveli for €1.63 billion. The purchase will help Booking Holdings Inc. (NASDAQ:BKNG) build “frictionless global flights offering”.
Hedge funds remain bullish on the firm. At the end of the third quarter of 2021, 96 hedge funds in the database of Insider Monkey held stakes worth $8.4 billion in Booking Holdings Inc. (NASDAQ:BKNG).
In its Q2 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and Booking Holdings Inc. (NASDAQ:BKNG) was one of them. Here is what the fund said:
“In the consumer discretionary sector, we trimmed pandemic winners in favor of companies we believe will outperform in a recovery period. Pent-up travel demand is another investment theme we believe will flourish, prompting us to buy a position in Booking Holdings (tkr: BKNG, see Featured Equity).”
12. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 117
Gain in Share Price Over Past Year as of January 4: 0.8%
CLSA analyst Neel Sinha recently upgraded Sea Limited (NYSE:SE) stock to Buy from Outperform and raised the price target to $455 from $352, noting that the company would benefit from expansion into new markets and growth in existing markets in the coming years. In the third quarter earnings, Sea Limited (NYSE:SE) smashed market estimates on revenue by $240 million. UBS, Citi, and Morgan Stanley are also bullish on the stock over the long term, along with hedge funds.
At the end of the third quarter of 2021, 117 hedge funds in the database of Insider Monkey held stakes worth $14 billion in Sea Limited (NYSE:SE), up from 104 the preceding quarter worth $12 billion.
In its Q4 2020 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:
“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.
A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.
Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).
For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and
Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)
I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!
Part of this stems from the fact that..”read the entire letter here]
11. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 106
Gain in Share Price Over Past Year as of January 4: 12.0%
Netflix, Inc. (NASDAQ:NFLX) has moved aggressively to gain market share in the competitive streaming market globally, slashing prices of subscriptions by almost 60% in India last year to attract more viewers. This is the first time that Netflix, Inc. (NASDAQ:NFLX) has reduced prices in India, one of the biggest tech markets in the world. In the third quarter of 2021, the Asia-Pacific region was the biggest contributor to membership growth for Netflix, Inc. (NASDAQ:NFLX), according to a letter to shareholders.
Netflix, Inc. (NASDAQ:NFLX) has remained among the top picks of hedge funds over the past few months, with 106 out of 867 tracked by Insider Monkey holding stakes in the streaming giant at the end of the third quarter of 2021. Citadel Investment Group is a leading shareholder in Netflix, Inc. (NASDAQ:NFLX) with 4.3 million shares worth more than $2.6 billion.
In its Q1 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Netflix, Inc. (NASDAQ:NFLX) was one of them. Here is what the fund said:
“We purchased Netflix in March, initiating a 3% position in the Portfolio. We believe Netflix is a highly competitively advantaged company. It has recently met all our investment guardrails, and we anticipate it will remain sustainably above our guardrails over the next five years and beyond. We know Netflix for its ubiquitous streaming service and deep library of owned content. The company has made investments in this content (currently running at nearly $20 billion/year), generally keeping subscribers highly engaged and loyal to their service. The company has number one market share in 99% of markets globally, but it is our view that video streaming on-demand is still an underpenetrated space with many years of attractive growth likely ahead. The service is also relatively affordable at roughly $11/month on average globally.
We believe Netflix’s growth in content spend is beginning to moderate, which could allow margin expansion to continue for many years when paired with ongoing subscriber growth and price increases. While there is competition from the likes of Apple (Apple TV+), Amazon (Prime Video), Disney (Disney+ and Hulu), and others, we believe there can be a handful of winners in this industry. Already, we see many people subscribe to multiple streaming video services, with Netflix being their “anchor” service. That said, the barriers to entry are high, and we believe they are getting higher given the substantial amount of capital and size of the subscriber base required to maintain a competitive service for both viewers and content producers. Over the next five years, we expect Netflix’s earnings growth to be approximately 30% annualized and free cash flow to grow at an even higher rate.”
10. Salesforce.com, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 119
Gain in Share Price Over Past Year as of January 4: 11.5%
Salesforce.com, Inc. (NYSE:CRM) operates in the cloud market. This market is expected to grow at a compound annual growth rate of more than 13% till 2025 to reach a total size of close to $250 billion. Salesforce.com, Inc. (NYSE:CRM), one of the market leaders in the cloud business, registered year-on-year revenue growth of 27% in the third quarter of 2021. Subscription shares, accounting for nearly 93% of the revenue share, were up more than 25%. Salesforce.com, Inc. (NYSE:CRM) could grow revenue to $50 billion by 2026, analysts predict.
Washington-based investment firm Fisher Asset Management is a long-time admirer of the stock and is a leading shareholder in Salesforce.com, Inc. (NYSE:CRM) with 13.9 million shares worth more than $3.7 billion.
“We added to our software-as-a-service (SaaS) exposure with the initiation of SaaS leader salesforce.com, which develops software for customer relationship management (we added Workday, which enterprise resource planning applications, last quarter). Saleforce.com is well-positioned in the most attractive end markets in software and will benefit from secular drivers such as remote work and the digital transformation. Salesforce.com is a sustainability leader as well, with a commitment to carbon-neutral cloud, toward which it has set a goal of 100% renewable energy for global operations by fiscal year 2022. The company has a strong focus on equality, in terms of equal rights, pay, education and opportunity. As a data company it has been leading on workforce disclosures and seeks to have 50% of its U.S. workforce made up of underrepresented groups by 2024.”
9. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 95
Gain in Share Price Over Past Year as of January 4: 12.1%
Despite a disappointing outlook for the fourth quarter, Adobe Inc. (NASDAQ:ADBE) was one of the best performing stocks in the tech industry for most of 2021, beating market expectations on earnings and generating enough cash to keep bears at bay. Analysts remain positive on the strength of the core business of Adobe Inc. (NASDAQ:ADBE) in 2022. At the end of September, 95 funds with stakes worth $12.6 billion were long Adobe Inc. (NASDAQ:ADBE).
Ken Fisher’s Fisher Asset Management is a leading shareholder in Adobe Inc. (NASDAQ:ADBE) with 6.4 million shares worth more than $3.7 billion.
Here is what Polen Capital has to say about Adobe Inc. (NASDAQ:ADBE) in its Q1 2021 investor letter:
“Adobe and Autodesk are both prime examples of the rotation that occurred during the quarter. Both are dominant businesses in their respective markets, which are experiencing structural tailwinds. Despite each business’s position of strength, the stocks of cyclicals and businesses with higher leverage and lower profitability were more favored this past quarter. In stark contrast, Adobe and Autodesk both have low leverage, high levels of profitability, high recurring revenues that mitigate cyclicality, and are both capital-light business models—all attributes we appreciate as investors. Adobe and Autodesk were also two of the top three performers within the Portfolio during 2020.”
8. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 87
Gain in Share Price Over Past Year as of January 4: 11.3%
ServiceNow, Inc. (NYSE:NOW) provides enterprise cloud computing solutions. Credit Suisse analyst Phil Winslow recently initiated coverage of ServiceNow, Inc. (NYSE:NOW) stock with an Outperform rating and a price target of $850, noting that the firm had a long runway of organic growth ahead as it had developed a “deep understanding” of automation, management, and improvement of enterprise workflows.
In late December, ServiceNow, Inc. (NYSE:NOW) announced that it had secured a five-year contract from the Internal Revenue Service to accelerate the digital transformation of the latter by integrating 12 legacy systems onto one tech platform.
Hedge funds love ServiceNow, Inc. (NYSE:NOW) stock as well. Connecticut-based investment firm Lone Pine Capital is a leading shareholder in ServiceNow, Inc. (NYSE:NOW) with 2.1 million shares worth more than $1.3 billion.
In its Q1 2021 investor letter, Palm Capital, an asset management firm, highlighted a few stocks and ServiceNow, Inc. (NYSE:NOW) was one of them. Here is what the fund said:
“ServiceNow provides software solutions to structure and automate various task and processes for large businesses. The company began in 2004 with a solution to help businesses manage the IT services they offer employees and customers. Unlike the existing solutions in the market, ServiceNow’s offering was built using modern architecture that was flexible, modular, and user-friendly. And it left the incumbents – large companies such as BMC, IBM and MicroFocus – playing catch up.
As the company grew to dominate this market, it saw the opportunity to expand its offering to include the broader task of IT Operations Management – or the monitoring and control of an entire business’s IT infrastructure. And over time its success in improving productivity and user experience in IT resulted in customers asking the company to expand its offering into other business workflows including HR Management and Customer Services – which it has since done.
All ServiceNow’s applications (including those built by customers and third parties) are built on its ‘Now’ platform. This allows the company and its customers to innovate and deploy new solutions quickly. And it helps ServiceNow gather a large amount of data to gain insights into and use machine learning to build solutions to meet customer needs in other areas. Crucially, this platform can interface with other SaaS and legacy software services used by its customers. Not only does this allow an IT department to manage all the myriad software services used by a business from a single point of control, it also reduces the operational disruption risk for those transitioning from legacy software systems to the cloud.
Aside from the ease of use of ServiceNow’s offerings, the other factor driving its growth is that its ‘land and expand’ strategy starts in the IT department of customers – the very department whose task it is to recommend other software solutions for businesses. It is therefore no surprise that more than 75% of ServiceNow’s customers use more than one of its products and 80% of its new business is from existing clients.
The company now serves…”[read the entire letter here]
7. Meta Platforms, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 248
Gain in Share Price Over Past Year as of January 4: 24.7%
Analysts expect Meta Platforms, Inc. (NASDAQ:FB) to continue to deliver returns of over 10% to investors in the coming years based on conservative estimates. Meta Platforms, Inc. (NASDAQ:FB) is also sitting on a giant pile of cash which can fund growth initiatives in the metaverse domain.
Meta Platforms, Inc. (NASDAQ:FB) stock has been among the most popular hedge fund stocks for many years. At the end of September 2021, 248 hedge funds in the database of Insider Monkey were long Meta Platforms, Inc. (NASDAQ:FB) with stakes worth $38 billion.
“We continued to keep our learnings from 2020 in mind during the quarter as we sought to increase the up capture of the portfolio. We also made adjustments to the portfolio’s top 10 holdings to increase the participation of select stocks, including Facebook, while trimming our weighting to stable names, which now represent 47% of the portfolio. Our repositioning has been encouraging so far with the portfolio performing better on up days in the market while maintaining good down capture during more turbulent sessions.”
6. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 101
Gain in Share Price Over Past Year as of January 4: 33.2%
UBS analyst Erika Najarian recently initiated coverage of JPMorgan Chase & Co. (NYSE:JPM) stock with a Buy rating and a price target of $210, noting the bank was the second most rate sensitive big bank, just behind the Bank of America. JPMorgan Chase & Co. (NYSE:JPM) could see net interest income increase in 2022 as interest rates rise, giving the stock a further boost after a better than expected performance in 2021.
JPMorgan Chase & Co. (NYSE:JPM) stock is a hedge fund favorite. One of the funds that holds a bullish view on JPMorgan Chase & Co. (NYSE:JPM) is Fisher Asset Management, a leading shareholder in the bank with 7 million shares worth more than $1.1 billion.
In addition to Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL), JPMorgan Chase & Co. (NYSE:JPM) is one of the stocks on the radar of institutional investors.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
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Disclosure. None. 15 Important Stock Picks of Major Hedge Funds in 2021 is originally published on Insider Monkey.