We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Elastic N.V. (NYSE:ESTC) based on that data.
Elastic N.V. (NYSE:ESTC) has seen an increase in enthusiasm from smart money of late. Our calculations also showed that ESTC 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chase Coleman of Tiger Global
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. Keeping this in mind let’s check out the key hedge fund action regarding Elastic N.V. (NYSE:ESTC).
How are hedge funds trading Elastic N.V. (NYSE:ESTC)?
At the end of the fourth quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from the third quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in ESTC a year ago. 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, Sylebra Capital Management held the most valuable stake in Elastic N.V. (NYSE:ESTC), which was worth $270 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $258.5 million worth of shares. Alyeska Investment Group, Shannon River Fund Management, and Holocene Advisors 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 Marcho Partners allocated the biggest weight to Elastic N.V. (NYSE:ESTC), around 12.89% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, dishing out 10.6 percent of its 13F equity portfolio to ESTC.
Now, some big names were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, initiated the most outsized position in Elastic N.V. (NYSE:ESTC). Alyeska Investment Group had $52.9 million invested in the company at the end of the quarter. David Gallo’s Valinor Management LLC also initiated a $22.8 million position during the quarter. The other funds with new positions in the stock are Carl Anderson’s Marcho Partners, Bobby Yazdani and Babak Poushanchi’s Cota Capital, and Josh Donfeld and David Rogers’s Castle Hook Partners.
Let’s go over hedge fund activity in other stocks similar to Elastic N.V. (NYSE:ESTC). We will take a look at Companhia Energetica Minas Gerais (NYSE:CIG), Crane Co. (NYSE:CR), Alliance Data Systems Corporation (NYSE:ADS), and Kemper Corporation (NYSE:KMPR). This group of stocks’ market valuations are closest to ESTC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CIG | 9 | 57674 | 1 |
| CR | 23 | 359867 | 0 |
| ADS | 45 | 1320134 | 6 |
| KMPR | 20 | 94921 | -1 |
| Average | 24.25 | 458149 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $920 million in ESTC’s case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Companhia Energetica Minas Gerais (NYSE:CIG) is the least popular one with only 9 bullish hedge fund positions. Elastic N.V. (NYSE:ESTC) 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 ESTC as the stock returned -12.5% 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.
