Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Chegg Inc (NYSE:CHGG) was in 36 hedge funds’ portfolios at the end of March. CHGG investors should pay attention to an increase in hedge fund interest in recent months. There were 21 hedge funds in our database with CHGG holdings at the end of the previous quarter. Our calculations also showed that chgg isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a glance at the key hedge fund action regarding Chegg Inc (NYSE:CHGG).
Hedge fund activity in Chegg Inc (NYSE:CHGG)
Heading into the second quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 71% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CHGG over the last 15 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Daniel Patrick Gibson’s Sylebra Capital Management has the biggest position in Chegg Inc (NYSE:CHGG), worth close to $134.6 million, comprising 7.9% of its total 13F portfolio. Sitting at the No. 2 spot is Hitchwood Capital Management, managed by James Crichton, which holds a $47.8 million position; 0.7% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions contain Ken Griffin’s Citadel Investment Group, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Principal Global Investors’s Columbus Circle Investors.
As aggregate interest increased, specific money managers were breaking ground themselves. D E Shaw, managed by D. E. Shaw, initiated the most outsized call position in Chegg Inc (NYSE:CHGG). D E Shaw had $21 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also made a $16.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Jim Simons’s Renaissance Technologies, Matthew Hulsizer’s PEAK6 Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Chegg Inc (NYSE:CHGG). We will take a look at Ingevity Corporation (NYSE:NGVT), Methanex Corporation (NASDAQ:MEOH), Pluralsight, Inc. (NASDAQ:PS), and Compañía de Minas Buenaventura S.A.A. (NYSE:BVN). This group of stocks’ market valuations are similar to CHGG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGVT | 23 | 112069 | 6 |
| MEOH | 22 | 260832 | 1 |
| PS | 30 | 321492 | 15 |
| BVN | 7 | 16483 | 1 |
| Average | 20.5 | 177719 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $178 million. That figure was $512 million in CHGG’s case. Pluralsight, Inc. (NASDAQ:PS) is the most popular stock in this table. On the other hand Compañía de Minas Buenaventura S.A.A. (NYSE:BVN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Chegg Inc (NYSE:CHGG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CHGG, though not to the same extent, as the stock returned -0.7% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
