Hedge Funds Proven Dead Right On Yahoo! Inc (YHOO)


There was a noticeable jump in hedge fund interest in Yahoo! Inc. (NASDAQ:YHOO) during the third quarter. The number of long hedge fund bets advanced by 15. Yahoo! Inc (NASDAQ:YHOO) was in 94 hedge funds’ portfolio at the end of September. There were 79 hedge funds in our database with YHOO holdings at the end of the previous quarter. Hedge funds were arguing that Yahoo shares were undervalued when they back out Yahoo’s stake in Alibaba. Well, Yahoo returned 22% since the end of the third quarter, vs. a 4.2% gain in S&P 500 ETF (SPY). Hedge funds were proven dead right.

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According to hedge fund tracking site Insider Monkey, this isn’t just a coincidence. Their research has shown that the most popular stocks among hedge funds actually outperform the market in their back tests. They have also been sharing the “15 best stock picks of the best hedge fund managers” with their subscribers since the end of August 2012. Their stock picks performed amazingly, returning 125% in 28 months. SPY gained only 53% during the same period. A sample of their stock picks can be seen here. Let’s take a glance at the recent action surrounding Yahoo! Inc. (NASDAQ:YHOO) and find out which hedge funds got it right.

What does the smart money think about Yahoo! Inc. (NASDAQ:YHOO)?

Heading into Q4, a total of 94 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of 19% from the previous quarter. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully.

D. E. Shaw’s D E Shaw had the largest position in Yahoo! Inc. (NASDAQ:YHOO), worth close to $797.3 million, accounting for 1% of its total 13F portfolio. Sitting at the No. 2 spot is York Capital Management, managed by James Dinan, which held a $400.6 million call position; 4.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions consist of John Thaler’s JAT Capital Management, Jeffrey Smith’s Starboard Value and Rob Citrone’s Discovery Capital Management.

Consequently, specific money managers have jumped into Yahoo! Inc. (NASDAQ:YHOO) headfirst. York Capital Management, managed by James Dinan, established the largest call position in Yahoo! Inc. (NASDAQ:YHOO). Jeffrey Smith’s Starboard Value LP also initiated a $314.8 million activist position during the quarter. The following funds were also among the new YHOO investors: George Soros’s Soros Fund Management, and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC.

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