Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Avalara, Inc. (NYSE:AVLR).
Avalara, Inc. (NYSE:AVLR) was in 15 hedge funds’ portfolios at the end of the third quarter of 2018. AVLR investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 14 hedge funds in our database with AVLR holdings at the end of the previous quarter. Our calculations also showed that AVLR 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a peek at the latest hedge fund action surrounding Avalara, Inc. (NYSE:AVLR).
What have hedge funds been doing with Avalara, Inc. (NYSE:AVLR)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AVLR over the last 13 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Sageview Capital was the largest shareholder of Avalara, Inc. (NYSE:AVLR), with a stake worth $541 million reported as of the end of September. Trailing Sageview Capital was EastBay Asset Management, which amassed a stake valued at $21 million. Tensile Capital, Osterweis Capital Management, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were breaking ground themselves. EastBay Asset Management, managed by Adam Wolfberg and Steven Landry, created the largest position in Avalara, Inc. (NYSE:AVLR). EastBay Asset Management had $21 million invested in the company at the end of the quarter. Douglas Dossey and Arthur Young’s Tensile Capital also made a $9.4 million investment in the stock during the quarter. The following funds were also among the new AVLR investors: John Osterweis’s Osterweis Capital Management, Steve Cohen’s Point72 Asset Management, and Christian Leone’s Luxor Capital Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Avalara, Inc. (NYSE:AVLR) but similarly valued. We will take a look at Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), Patterson Companies, Inc. (NASDAQ:PDCO), Scientific Games Corp (NASDAQ:SGMS), and Harsco Corporation (NYSE:HSC). This group of stocks’ market valuations are closest to AVLR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PPBI | 9 | 105444 | -1 |
| PDCO | 29 | 285433 | 1 |
| SGMS | 25 | 714551 | -5 |
| HSC | 22 | 134198 | 0 |
| Average | 21.25 | 309907 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $596 million in AVLR’s case. Patterson Companies, Inc. (NASDAQ:PDCO) is the most popular stock in this table. On the other hand Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) is the least popular one with only 9 bullish hedge fund positions. Avalara, Inc. (NYSE:AVLR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PDCO might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
