Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Arista Networks Inc (NYSE:ANET) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Arista Networks Inc (NYSE:ANET) investors should be aware of an increase in hedge fund interest lately. ANET was in 26 hedge funds’ portfolios at the end of December. There were 23 hedge funds in our database with ANET holdings at the end of the previous quarter. Our calculations also showed that ANET isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below 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 was able to identify in advance a select group of hedge fund holdings that 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.
Gil Simon of SoMa Equity 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. Keeping this in mind let’s take a peek at the fresh hedge fund action encompassing Arista Networks Inc (NYSE:ANET).
How have hedgies been trading Arista Networks Inc (NYSE:ANET)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in ANET a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Arista Networks Inc (NYSE:ANET), with a stake worth $105.8 million reported as of the end of September. Trailing Renaissance Technologies was SoMa Equity Partners, which amassed a stake valued at $81.4 million. Citadel Investment Group, Two Sigma Advisors, and D E Shaw 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 SoMa Equity Partners allocated the biggest weight to Arista Networks Inc (NYSE:ANET), around 5.02% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, dishing out 0.93 percent of its 13F equity portfolio to ANET.
As aggregate interest increased, key money managers have been driving this bullishness. SoMa Equity Partners, managed by Gil Simon, initiated the most valuable position in Arista Networks Inc (NYSE:ANET). SoMa Equity Partners had $81.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $4.5 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Ray Dalio’s Bridgewater Associates, and Matthew L Pinz’s Pinz Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Arista Networks Inc (NYSE:ANET) but similarly valued. These stocks are SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Paycom Software Inc (NYSE:PAYC), Genuine Parts Company (NYSE:GPC), and iQIYI, Inc. (NASDAQ:IQ). This group of stocks’ market values are closest to ANET’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSNC | 59 | 1996210 | 13 |
| PAYC | 27 | 385882 | -6 |
| GPC | 21 | 271270 | 0 |
| IQ | 18 | 1133592 | -5 |
| Average | 31.25 | 946739 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $947 million. That figure was $284 million in ANET’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand iQIYI, Inc. (NASDAQ:IQ) is the least popular one with only 18 bullish hedge fund positions. Arista Networks Inc (NYSE:ANET) is not the least popular stock in this group but hedge fund interest is still below 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ANET, though not to the same extent, as the stock returned -22.8% during the same time period and outperformed the market.
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.
