Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26th. Forty percent of the S&P 500 constituents were down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about Yext, Inc. (NYSE:YEXT).
Yext, Inc. (NYSE:YEXT) was in 16 hedge funds’ portfolios at the end of the third quarter of 2018. YEXT has experienced an increase in hedge fund sentiment recently. There were 14 hedge funds in our database with YEXT positions at the end of the previous quarter. Our calculations also showed that YEXT isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s analyze the latest hedge fund action encompassing Yext, Inc. (NYSE:YEXT).
How have hedgies been trading Yext, Inc. (NYSE:YEXT)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in YEXT over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of Yext, Inc. (NYSE:YEXT), with a stake worth $49.8 million reported as of the end of September. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $49.3 million. Shannon River Fund Management, Hitchwood Capital Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Hitchwood Capital Management, managed by James Crichton, initiated the most outsized position in Yext, Inc. (NYSE:YEXT). Hitchwood Capital Management had $23.7 million invested in the company at the end of the quarter. Andrew Sandler’s Sandler Capital Management also made a $6.8 million investment in the stock during the quarter. The other funds with new positions in the stock are David Costen Haley’s HBK Investments, Matthew Hulsizer’s PEAK6 Capital Management, and Noam Gottesman’s GLG Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Yext, Inc. (NYSE:YEXT) but similarly valued. These stocks are El Paso Electric Company (NYSE:EE), Main Street Capital Corporation (NYSE:MAIN), Nelnet, Inc. (NYSE:NNI), and Shake Shack Inc (NYSE:SHAK). All of these stocks’ market caps resemble YEXT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EE | 15 | 308083 | 4 |
| MAIN | 8 | 8622 | 1 |
| NNI | 15 | 84035 | 1 |
| SHAK | 22 | 293850 | 1 |
| Average | 15 | 173648 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $204 million in YEXT’s case. Shake Shack Inc (NYSE:SHAK) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 8 bullish hedge fund positions. Yext, Inc. (NYSE:YEXT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SHAK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
