Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Guidewire Software Inc (NYSE:GWRE).
Guidewire Software Inc (NYSE:GWRE) was in 32 hedge funds’ portfolios at the end of December. GWRE has seen an increase in hedge fund interest lately. There were 24 hedge funds in our database with GWRE holdings at the end of the previous quarter. Our calculations also showed that GWRE 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.
Daniel Sundheim of D1 Capital Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s analyze the fresh hedge fund action surrounding Guidewire Software Inc (NYSE:GWRE).
How are hedge funds trading Guidewire Software Inc (NYSE:GWRE)?
Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in GWRE over the last 18 quarters. 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, Stockbridge Partners held the most valuable stake in Guidewire Software Inc (NYSE:GWRE), which was worth $272.4 million at the end of the third quarter. On the second spot was D1 Capital Partners which amassed $96 million worth of shares. Cadian Capital, Shannon River Fund Management, and MIG Capital 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 Stockbridge Partners allocated the biggest weight to Guidewire Software Inc (NYSE:GWRE), around 9.88% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, designating 6.75 percent of its 13F equity portfolio to GWRE.
As aggregate interest increased, some big names were leading the bulls’ herd. 12 West Capital Management, managed by Joel Ramin, initiated the most outsized position in Guidewire Software Inc (NYSE:GWRE). 12 West Capital Management had $42.8 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $10.6 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Noam Gottesman’s GLG Partners, and Mika Toikka’s AlphaCrest Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Guidewire Software Inc (NYSE:GWRE) but similarly valued. We will take a look at Westlake Chemical Corporation (NYSE:WLK), Jones Lang LaSalle Inc (NYSE:JLL), Lamar Advertising Co (NASDAQ:LAMR), and BorgWarner Inc. (NYSE:BWA). All of these stocks’ market caps resemble GWRE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WLK | 22 | 335701 | 4 |
| JLL | 30 | 1283217 | -1 |
| LAMR | 28 | 251922 | -5 |
| BWA | 27 | 737869 | 1 |
| Average | 26.75 | 652177 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $652 million. That figure was $742 million in GWRE’s case. Jones Lang LaSalle Inc (NYSE:JLL) is the most popular stock in this table. On the other hand Westlake Chemical Corporation (NYSE:WLK) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Guidewire Software Inc (NYSE:GWRE) is more popular among hedge funds. 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 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately GWRE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GWRE were disappointed as the stock returned -29.2% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
