Did Hedge Funds Make The Right Call On Pure Storage, Inc. (PSTG) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtPure Storage, Inc. (NYSE:PSTG) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Pure Storage, Inc. (NYSE:PSTG) has seen a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that PSTG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most investors, hedge funds are assumed to be underperforming, outdated investment vehicles of the past. While there are over 8000 funds with their doors open today, Our experts look at the elite of this group, around 850 funds. These hedge fund managers command bulk of the smart money’s total asset base, and by tailing their highest performing picks, Insider Monkey has figured out numerous investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the key hedge fund action encompassing Pure Storage, Inc. (NYSE:PSTG).

Hedge fund activity in Pure Storage, Inc. (NYSE:PSTG)

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in PSTG a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Pure Storage, Inc. (NYSE:PSTG) was held by Eminence Capital, which reported holding $174.4 million worth of stock at the end of September. It was followed by D E Shaw with a $35.6 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to Pure Storage, Inc. (NYSE:PSTG), around 2.46% of its 13F portfolio. Eminence Capital is also relatively very bullish on the stock, designating 1.91 percent of its 13F equity portfolio to PSTG.

Due to the fact that Pure Storage, Inc. (NYSE:PSTG) has experienced falling interest from hedge fund managers, logic holds that there were a few hedge funds who sold off their entire stakes by the end of the first quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the 750 funds watched by Insider Monkey, totaling about $5.6 million in stock, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management was right behind this move, as the fund dumped about $5.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Pure Storage, Inc. (NYSE:PSTG) but similarly valued. These stocks are FirstService Corporation (TSE:FSV), Silgan Holdings Inc. (NASDAQ:SLGN), The Middleby Corporation (NASDAQ:MIDD), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). This group of stocks’ market values resemble PSTG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $321 million in PSTG’s case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand FirstService Corporation (TSE:FSV) is the least popular one with only 12 bullish hedge fund positions. Pure Storage, Inc. (NYSE:PSTG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on PSTG as the stock returned 40.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.