Shares of hedge fund favorite Netflix surged about 10 percent, to close
at $250.29, after the streaming video giant reported much
better results than Wall Street was anticipating for the fourth
quarter. In response, several investment banks raised their
earnings estimates and their target prices. For example, Credit
Suisse boosted its target from $224 to $266. However, it
maintained its neutral rating on the stock, stressing that the
big boost in revenues at the company was partially offset by
higher content costs.
UBS, however, raised its price target from $250 to $290 and
maintained its buy rating, stressing it sees Netflix "clearing
a fairly high hurdle against investor expectations." It raised
its revenue forecasts, asserting that the
company’s outlook "is positive."
At the end of the third quarter, at least 117 hedge funds
held a position in the stock, 20 more than the previous
quarter, according to research and analytics firm Novus. Of
those, 24 funds counted Netflix among their top-ten holdings,
according to Goldman Sachs. The largest hedge fund investor was
SRS Investment Management, which owned nearly 10.5 million
shares, making it the Tiger Grandcub’s largest
U.S. equity holding. SRS is headed by Karthik Sarma, who
earlier worked for Chase Coleman’s Tiger Global
Management. Other Tiger Cubs who count the stock among their
top-ten holdings include Viking Global Investors, Coatue Management, and Tiger Global Management.
One manager who is not cheering Netflix’s
results is David Einhorn of Greenlight Capital. His short position in
the stock was one of his biggest losers last year. In his
third-quarter letter, the long-short hedge fund manager
asserted that Netflix "continues to accelerate its cash burn as
it desperately tries to compensate for its inability to rely
longer-term on licensed content." This is what makes a
Hedge fund investors once again are chasing returns. As the
stock market surged to its best year since 2013, investors
pumped $30 billion into equity strategies last year, according
to eVestment. This inflow was the third highest since the
financial crisis, following higher sums in 2014 and 2010, which
just happened to follow huge gains in the equities markets.
Alas, this may be bad timing.
"Historically this has been a bad sign for equity market,"
eVestment states in its latest monthly data report. "In each
instance the following year equities experienced low annual
returns." In 2015 the Standard & Poor’s 500
stock index returned just 1.4 percent, while in 2011 it rose
just 2.1 percent. The hedge fund data collector also points out
that December redemptions from hedge funds in general were
$8.35 billion, the lightest level of redemptions in December
since 2010. December also marked the fourth straight quarter of
outflows for macro funds. For the full year, total hedge fund
industry net flows amounted to $30.13 billion, boosting total
industry assets to a record $3.276 trillion, according to
Shares of hedge fund favorite Alibaba Group Holding surged 4.5 percent,
to close at $192.24, despite no apparent significant news. At
the end of the third quarter, the Chinese e-commerce giant was
the tenth-most-popular stock among hedge funds, with at least
185 holding a position, according to Novus.