Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Smartsheet Inc. (NYSE:SMAR).
Smartsheet Inc. (NYSE:SMAR) has experienced an increase in enthusiasm from smart money recently. SMAR was in 30 hedge funds’ portfolios at the end of March. There were 17 hedge funds in our database with SMAR holdings at the end of the previous quarter. Our calculations also showed that SMAR isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most traders, hedge funds are perceived as worthless, old financial tools of years past. While there are greater than 8000 funds trading today, We choose to focus on the upper echelon of this group, around 750 funds. It is estimated that this group of investors command most of the hedge fund industry’s total asset base, and by monitoring their top equity investments, Insider Monkey has unearthed a few investment strategies that have historically exceeded the market. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Let’s check out the fresh hedge fund action encompassing Smartsheet Inc. (NYSE:SMAR).
What have hedge funds been doing with Smartsheet Inc. (NYSE:SMAR)?
At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 76% from the fourth quarter of 2018. On the other hand, there were a total of 0 hedge funds with a bullish position in SMAR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Alex Sacerdote’s Whale Rock Capital Management has the most valuable position in Smartsheet Inc. (NYSE:SMAR), worth close to $109.5 million, corresponding to 2% of its total 13F portfolio. The second largest stake is held by Panayotis Takis Sparaggis of Alkeon Capital Management, with a $77.7 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism include Steve Cohen’s Point72 Asset Management, Joel Ramin’s 12 West Capital Management and D. E. Shaw’s D E Shaw.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Smartsheet Inc. (NYSE:SMAR) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the most outsized position in Smartsheet Inc. (NYSE:SMAR). Point72 Asset Management had $73.4 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $45.1 million position during the quarter. The other funds with brand new SMAR positions are Ken Griffin’s Citadel Investment Group, Jaime Sterne’s Skye Global Management, and Ben Gambill’s Tiger Eye Capital.
Let’s also examine hedge fund activity in other stocks similar to Smartsheet Inc. (NYSE:SMAR). These stocks are Deckers Outdoor Corp (NYSE:DECK), Blackstone Mortgage Trust Inc (NYSE:BXMT), Essent Group Ltd (NYSE:ESNT), and Pinnacle Financial Partners (NASDAQ:PNFP). This group of stocks’ market caps are closest to SMAR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DECK | 29 | 593943 | 8 |
| BXMT | 15 | 101684 | -1 |
| ESNT | 27 | 309747 | -1 |
| PNFP | 15 | 87922 | 0 |
| Average | 21.5 | 273324 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $569 million in SMAR’s case. Deckers Outdoor Corp (NYSE:DECK) is the most popular stock in this table. On the other hand Blackstone Mortgage Trust Inc (NYSE:BXMT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Smartsheet Inc. (NYSE:SMAR) 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 SMAR as the stock returned 6.6% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
