Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Coupa Software Incorporated (NASDAQ:COUP).
Coupa Software Incorporated (NASDAQ:COUP) shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that COUP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the eyes of most shareholders, hedge funds are seen as unimportant, outdated investment tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our experts choose to focus on the top tier of this club, approximately 750 funds. Most estimates calculate that this group of people control the lion’s share of all hedge funds’ total asset base, and by tracking their highest performing investments, Insider Monkey has figured out a number of investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Stephen Mandel of Lone Pine Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a gander at the new hedge fund action encompassing Coupa Software Incorporated (NASDAQ:COUP).
What does smart money think about Coupa Software Incorporated (NASDAQ:COUP)?
At the end of the third quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. By comparison, 39 hedge funds held shares or bullish call options in COUP a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Whale Rock Capital Management was the largest shareholder of Coupa Software Incorporated (NASDAQ:COUP), with a stake worth $406.8 million reported as of the end of September. Trailing Whale Rock Capital Management was Sylebra Capital Management, which amassed a stake valued at $334.6 million. Alkeon Capital Management, Lone Pine Capital, and Viking Global were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Center Lake Capital allocated the biggest weight to Coupa Software Incorporated (NASDAQ:COUP), around 28.89% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, dishing out 17.3 percent of its 13F equity portfolio to COUP.
Because Coupa Software Incorporated (NASDAQ:COUP) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of funds that decided to sell off their positions entirely last quarter. At the top of the heap, Brandon Haley’s Holocene Advisors dropped the largest position of all the hedgies tracked by Insider Monkey, totaling close to $64.6 million in stock. Michael Hintze’s fund, CQS Cayman LP, also said goodbye to its stock, about $42.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Coupa Software Incorporated (NASDAQ:COUP). These stocks are Companhia de Saneamento Basico (NYSE:SBS), Ubiquiti Inc. (NYSE:UI), Zendesk Inc (NYSE:ZEN), and Royal Gold, Inc (NASDAQ:RGLD). All of these stocks’ market caps are closest to COUP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBS | 11 | 372148 | -1 |
| UI | 16 | 182015 | -1 |
| ZEN | 44 | 1453964 | -6 |
| RGLD | 25 | 126740 | 6 |
| Average | 24 | 533717 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $2563 million in COUP’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Coupa Software Incorporated (NASDAQ:COUP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on COUP as the stock returned 136.6% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
