Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Axon Enterprise, Inc. (NASDAQ:AAXN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Axon Enterprise, Inc. (NASDAQ:AAXN) the right pick for your portfolio? The best stock pickers are in an optimistic mood. The number of bullish hedge fund positions inched up by 5 in recent months. Our calculations also showed that AAXN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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’ 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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Colin Moran of Abdiel Capital Advisors
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the fresh hedge fund action surrounding Axon Enterprise, Inc. (NASDAQ:AAXN).
What have hedge funds been doing with Axon Enterprise, Inc. (NASDAQ:AAXN)?
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AAXN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Abdiel Capital Advisors was the largest shareholder of Axon Enterprise, Inc. (NASDAQ:AAXN), with a stake worth $136.3 million reported as of the end of September. Trailing Abdiel Capital Advisors was Broadwood Capital, which amassed a stake valued at $55.7 million. Polar Capital, D E Shaw, and Motley Fool Asset Management 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 Abdiel Capital Advisors allocated the biggest weight to Axon Enterprise, Inc. (NASDAQ:AAXN), around 8.52% of its 13F portfolio. Broadwood Capital is also relatively very bullish on the stock, dishing out 6.42 percent of its 13F equity portfolio to AAXN.
Now, specific money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, assembled the biggest position in Axon Enterprise, Inc. (NASDAQ:AAXN). D E Shaw had $35.4 million invested in the company at the end of the quarter. Jaime Sterne’s Skye Global Management also made a $11.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Driehaus’s Driehaus Capital, Phill Gross and Robert Atchinson’s Adage Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Axon Enterprise, Inc. (NASDAQ:AAXN) but similarly valued. These stocks are LHC Group, Inc. (NASDAQ:LHCG), AutoNation, Inc. (NYSE:AN), MSC Industrial Direct Co Inc (NYSE:MSM), and BridgeBio Pharma, Inc. (NASDAQ:BBIO). This group of stocks’ market caps resemble AAXN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LHCG | 26 | 141372 | -3 |
| AN | 31 | 409983 | 7 |
| MSM | 30 | 252552 | 6 |
| BBIO | 11 | 1324595 | -1 |
| Average | 24.5 | 532126 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $532 million. That figure was $355 million in AAXN’s case. AutoNation, Inc. (NYSE:AN) is the most popular stock in this table. On the other hand BridgeBio Pharma, Inc. (NASDAQ:BBIO) is the least popular one with only 11 bullish hedge fund positions. Axon Enterprise, Inc. (NASDAQ:AAXN) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on AAXN as the stock returned -2.9% during the first quarter (through March 25th) 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.
