Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Arista Networks Inc (NYSE:ANET).
Arista Networks Inc (NYSE:ANET) was in 26 hedge funds’ portfolios at the end of March. The all time high for this statistic is 35. ANET investors should be aware of a decrease in hedge fund interest in recent months. There were 35 hedge funds in our database with ANET holdings at the end of December. Our calculations also showed that ANET isn’t among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Ian Wace of Marshall Wace
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to check out the key hedge fund action encompassing Arista Networks Inc (NYSE:ANET).
Do Hedge Funds Think ANET Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in ANET a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the number one call position in Arista Networks Inc (NYSE:ANET), worth close to $52.9 million, accounting for less than 0.1%% of its total 13F portfolio. On Citadel Investment Group’s heels is Renaissance Technologies, with a $41.4 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers that are bullish comprise Anand Parekh’s Alyeska Investment Group, Michael Rockefeller and KarláKroeker’s Woodline Partners and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Bronson Point Partners allocated the biggest weight to Arista Networks Inc (NYSE:ANET), around 2.57% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, designating 0.56 percent of its 13F equity portfolio to ANET.
Due to the fact that Arista Networks Inc (NYSE:ANET) has experienced bearish sentiment from the smart money, logic holds that there were a few money managers that slashed their entire stakes heading into Q2. Intriguingly, Suraj Parkash Chopra’s Force Hill Capital Management sold off the biggest investment of all the hedgies followed by Insider Monkey, comprising close to $23.2 million in stock. Brandon Haley’s fund, Holocene Advisors, also dumped its stock, about $22.1 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 9 funds heading into Q2.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arista Networks Inc (NYSE:ANET) but similarly valued. These stocks are Yandex NV (NASDAQ:YNDX), Li Auto Inc. (NASDAQ:LI), United Microelectronics Corp (NYSE:UMC), ONEOK, Inc. (NYSE:OKE), Baker Hughes Company (NYSE:BKR), Verisign, Inc. (NASDAQ:VRSN), and Zillow Group Inc (NASDAQ:Z). This group of stocks’ market values resemble ANET’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| YNDX | 29 | 1260108 | -5 |
| LI | 18 | 493824 | -13 |
| UMC | 11 | 173050 | -1 |
| OKE | 20 | 67349 | -2 |
| BKR | 42 | 965463 | 7 |
| VRSN | 42 | 5639028 | -5 |
| Z | 82 | 5732513 | -1 |
| Average | 34.9 | 2047334 | -2.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.9 hedge funds with bullish positions and the average amount invested in these stocks was $2047 million. That figure was $254 million in ANET’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand United Microelectronics Corp (NYSE:UMC) is the least popular one with only 11 bullish hedge fund positions. Arista Networks Inc (NYSE:ANET) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ANET is 28.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and still beat the market by 6.7 percentage points. A small number of hedge funds were also right about betting on ANET as the stock returned 25.2% since the end of the first quarter (through 7/9) and outperformed the market by an even larger margin.
Follow Arista Networks Inc. (NYSE:ANET)
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Disclosure: None. This article was originally published at Insider Monkey.
