Hedge funds continue to exert outsized influence over equity markets. The world’s 20 largest hedge funds collectively hold $45 trillion of assets under management. The largest hedge fund in the U.S., Bridgewater Associates, manages $126 billion. These massive funds often buy and sell billions of dollars worth of stock at a time, moving markets in the process.
When a hedge fund takes a big position in a stock, it is viewed as a vote of confidence in the company and the future direction of the share price. Conversely, when hedge funds liquidate a position, it is taken as a sign by other investors that it’s time to sell. The latest moves by U.S. hedge funds were recently disclosed as part of regulatory disclosure requirements. This allows us to see what stocks hedge funds bought and sold during the first quarter of 2023.
Here is a look at three stocks that hedge funds have ghosted big-time.
|Bank of New York Mellon
Soros Fund Management, the family office of billionaire investor George Soros, is a fund many investors look to for guidance. Accordingly, when this hedge fund sold its entire stake in electric vehicle maker Tesla (NASDAQ:TSLA) during this year’s first quarter, investors perked up.
Soros dumped TSLA stock in relatively short order. His hedge fund loaded up on TSLA stock throughout the fourth quarter of 2022, when its share price fell 60% between the start of October and the end of December. The stock literally bottomed on January 3 of this year before rising 92% during the first quarter, peaking on March 31.
So far in the second quarter, TSLA stock has pulled back 7%. Soros and other hedge fund managers seem to have timed the dip and rise in Tesla’s share price perfectly. Now that the stock is again slumping, Soros and others have exited their position in Tesla and moved onto new investments. In Soros’ case, he opened a new stake in Netflix (NASDAQ:NFLX).
The exit from Tesla seems to have been well-timed, to say the least. Tesla is likely to continue to struggle with weak consumer demand and declining sales. The company’s CEO Elon Musk said during a Q1 earnings call that he sees an “uncertain” macroeconomic environment ahead. I think Soros is right to be selling here, and this is a stock I’d be cautious of right now.
Bank of New York Mellon (BK)
In general, hedge funds were net sellers of bank stocks during Q1, following the failure of multiple regional lenders across the U.S. Notably, one of the biggest sales occurred with Bank of New York Mellon (NYSE:BK).
Famed investor Warren Buffett, who has historically been bullish on banks, sold his entire position in Bank of New York Mellon during Q1. This came as the Oracle of Omaha loaded up on more shares of Bank of America (NYSE:BAC). Many hedge fund managers also offloaded their holdings in Bank of New York Mellon, as the situation with mid-sized lenders in the U.S. deteriorated in the first few months of the year.
Why did hedge funds and other notable investors sell their stakes in BK stock? Likely because Bank of New York Mellon has a large number of uninsured deposits. According to Visual Capitalist, 92% of the deposits held at Bank of New York Mellon are uninsured. The federal government in Washington, D.C. insures deposit amounts up to $250,000. Any more is not insured, which can lead bank customers to withdraw funds if they feel a bank is on shaky ground. Should enough customers pull their deposits at once, it can lead to a run on the bank. That’s what brought down regional lenders such as Silicon Valley Bank and Signature Bank.
Hedge fund managers, and Warren Buffett, clearly didn’t feel comfortable with the level of uninsured deposits at Bank of New York Mellon and dumped BK stock as a result. Year to date, BK stock is down 12%.
The Magic Kingdom might be the happiest place on earth, but Disney (NYSE:DIS) was not the best place to invest capital judging by the way hedge fund managers and other prominent investors dumped the stock during Q1. Many hedge funds dramatically trimmed their holdings of DIS stock during the first quarter, with some exiting their entire position. For example, Soros Fund cut its stake in Disney stock by 75%. The selloff among hedge funds has helped push Disney’s share price down 20% over the past 12 months and near a 52-week low.
Perhaps hedge fund managers are concerned about the ongoing restructuring at Disney that’s being orchestrated by interim CEO Bog Iger? Or maybe they’re concerned about softening user numbers at the Disney+ streaming service? Or they might be irritated that the company has yet to reinstate the dividend it suspended during the pandemic? They could also be miffed about the ongoing feud with Florida Governor Ron DeSantis?
Whatever the reasons, hedge funds seem to have had enough of the Mouse House, offloading DIS stock mightily during the first three months of the year.
On the date of publication, Joel Baglole held long positions in BAC and DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.