It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Splunk Inc (NASDAQ:SPLK) and compare its performance against hedge funds’ favorite stocks.
Is Splunk Inc (NASDAQ:SPLK) worth your attention right now? Investors who are in the know are getting more bullish. The number of bullish hedge fund bets rose by 7 recently. Our calculations also showed that SPLK 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).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
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. Keeping this in mind let’s check out the fresh hedge fund action encompassing Splunk Inc (NASDAQ:SPLK).
Hedge fund activity in Splunk Inc (NASDAQ:SPLK)
At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in SPLK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Splunk Inc (NASDAQ:SPLK), which was worth $34.4 million at the end of the third quarter. On the second spot was Polar Capital which amassed $23 million worth of shares. Kayak Investment Partners, Balyasny Asset Management, and PDT Partners 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 Kayak Investment Partners allocated the biggest weight to Splunk Inc (NASDAQ:SPLK), around 7.03% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, designating 3.24 percent of its 13F equity portfolio to SPLK.
As industrywide interest jumped, key money managers have jumped into Splunk Inc (NASDAQ:SPLK) headfirst. Kayak Investment Partners, managed by Daryl Smith, assembled the largest position in Splunk Inc (NASDAQ:SPLK). Kayak Investment Partners had $12.4 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also made a $10.1 million investment in the stock during the quarter. The other funds with brand new SPLK positions are David Harding’s Winton Capital Management, Charles Davidson and Joseph Jacobs’s Wexford Capital, and Will Graves’s Boardman Bay Capital Management.
Let’s now review hedge fund activity in other stocks similar to Splunk Inc (NASDAQ:SPLK). These stocks are CDW Corporation (NASDAQ:CDW), CBRE Group, Inc. (NYSE:CBRE), Western Digital Corporation (NASDAQ:WDC), and New Oriental Education & Tech Group Inc. (NYSE:EDU). All of these stocks’ market caps resemble SPLK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDW | 26 | 1168154 | -3 |
| CBRE | 27 | 1095686 | 2 |
| WDC | 35 | 905397 | 10 |
| EDU | 35 | 1511145 | 3 |
| Average | 30.75 | 1170096 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1170 million. That figure was $169 million in SPLK’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand CDW Corporation (NASDAQ:CDW) is the least popular one with only 26 bullish hedge fund positions. Splunk Inc (NASDAQ:SPLK) is not the most popular stock in this group but hedge fund interest is still above average. 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 SPLK as the stock returned 43.1% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
