How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fastly, Inc. (NYSE:FSLY).
Is FSLY stock a buy? Fastly, Inc. (NYSE:FSLY) has seen an increase in activity from the world’s largest hedge funds lately. Fastly, Inc. (NYSE:FSLY) was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 22 hedge funds in our database with FSLY positions at the end of the third quarter. Our calculations also showed that FSLY isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Colin Moran of Abdiel Capital Advisors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a glance at the fresh hedge fund action encompassing Fastly, Inc. (NYSE:FSLY).
Do Hedge Funds Think FSLY Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the third quarter of 2020. On the other hand, there were a total of 19 hedge funds with a bullish position in FSLY 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Abdiel Capital Advisors, managed by Colin Moran, holds the largest position in Fastly, Inc. (NYSE:FSLY). Abdiel Capital Advisors has a $813 million position in the stock, comprising 23% of its 13F portfolio. Sitting at the No. 2 spot is Alex Sacerdote of Whale Rock Capital Management, with a $360.1 million position; 2.4% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain Catherine D. Wood’s ARK Investment Management, D. E. Shaw’s D E Shaw and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Fastly, Inc. (NYSE:FSLY), around 22.95% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, earmarking 3.58 percent of its 13F equity portfolio to FSLY.
As aggregate interest increased, specific money managers have jumped into Fastly, Inc. (NYSE:FSLY) headfirst. ARK Investment Management, managed by Catherine D. Wood, created the biggest position in Fastly, Inc. (NYSE:FSLY). ARK Investment Management had $99.5 million invested in the company at the end of the quarter. Ryan Caldwell’s Chiron Investment Management also made a $12.5 million investment in the stock during the quarter. The other funds with brand new FSLY positions are Brian Gootzeit and Andrew Frank’s StackLine Partners, Clayton Gardner and Joe Percoco’s Titan Global Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to Fastly, Inc. (NYSE:FSLY). These stocks are Molson Coors Beverage Company (NYSE:TAP), Algonquin Power & Utilities Corp. (NYSE:AQN), Gaming and Leisure Properties Inc (NASDAQ:GLPI), Dolby Laboratories, Inc. (NYSE:DLB), Five Below Inc (NASDAQ:FIVE), Aramark (NYSE:ARMK), and Formula One Group (NASDAQ:FWONK). This group of stocks’ market caps match FSLY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TAP | 39 | 386362 | 6 |
| AQN | 15 | 298528 | 4 |
| GLPI | 33 | 825099 | 3 |
| DLB | 31 | 864338 | -4 |
| FIVE | 42 | 997077 | -2 |
| ARMK | 33 | 1422317 | -7 |
| FWONK | 42 | 1724356 | 2 |
| Average | 33.6 | 931154 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.6 hedge funds with bullish positions and the average amount invested in these stocks was $931 million. That figure was $1551 million in FSLY’s case. Five Below Inc (NASDAQ:FIVE) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 15 bullish hedge fund positions. Fastly, Inc. (NYSE:FSLY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FSLY is 71.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately FSLY wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); FSLY investors were disappointed as the stock returned -21.1% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
