Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
8×8, Inc. (NYSE:EGHT) was in 22 hedge funds’ portfolios at the end of the third quarter of 2019. EGHT has experienced an increase in hedge fund sentiment in recent months. There were 20 hedge funds in our database with EGHT positions at the end of the previous quarter. Our calculations also showed that EGHT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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.
Chase Coleman of Tiger Global
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action regarding 8×8, Inc. (NYSE:EGHT).
What does smart money think about 8×8, Inc. (NYSE:EGHT)?
At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EGHT over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Tiger Global Management was the largest shareholder of 8×8, Inc. (NYSE:EGHT), with a stake worth $98 million reported as of the end of September. Trailing Tiger Global Management was Sylebra Capital Management, which amassed a stake valued at $92.2 million. Point72 Asset Management, Citadel Investment Group, and Polar 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 Sylebra Capital Management allocated the biggest weight to 8×8, Inc. (NYSE:EGHT), around 4.03% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, earmarking 1.85 percent of its 13F equity portfolio to EGHT.
As one would reasonably expect, key hedge funds have jumped into 8×8, Inc. (NYSE:EGHT) headfirst. Moore Global Investments, managed by Louis Bacon, created the most outsized position in 8×8, Inc. (NYSE:EGHT). Moore Global Investments had $10.7 million invested in the company at the end of the quarter. Philippe Laffont’s Coatue Management also initiated a $3.4 million position during the quarter. The following funds were also among the new EGHT investors: Vikas Lunia’s Lunia Capital, Israel Englander’s Millennium Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as 8×8, Inc. (NYSE:EGHT) but similarly valued. We will take a look at Endava plc (NYSE:DAVA), Tower Semiconductor Ltd. (NASDAQ:TSEM), BEST Inc. (NYSE:BEST), and DiamondRock Hospitality Company (NYSE:DRH). All of these stocks’ market caps are similar to EGHT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DAVA | 5 | 44044 | -3 |
| TSEM | 13 | 289098 | 2 |
| BEST | 14 | 46733 | 1 |
| DRH | 16 | 116483 | -1 |
| Average | 12 | 124090 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $453 million in EGHT’s case. DiamondRock Hospitality Company (NYSE:DRH) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks 8×8, Inc. (NYSE:EGHT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EGHT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EGHT were disappointed as the stock returned -1% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
