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 in recent 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 certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards ServiceNow Inc (NYSE:NOW).
Is NOW stock a buy or sell? ServiceNow Inc (NYSE:NOW) was in 96 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 92. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. NOW investors should pay attention to an increase in support from the world’s most elite money managers recently. There were 82 hedge funds in our database with NOW holdings at the end of September. Our calculations also showed that NOW ranked 25th among the 30 most popular stocks among hedge funds (click for Q4 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. 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 homepage (or at the end of this article). Now we’re going to review the key hedge fund action encompassing ServiceNow Inc (NYSE:NOW).
Do Hedge Funds Think NOW Is A Good Stock To Buy Now?
At Q4’s end, a total of 96 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NOW over the last 22 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Chase Coleman’s Tiger Global Management LLC has the most valuable position in ServiceNow Inc (NYSE:NOW), worth close to $904.4 million, comprising 2.3% of its total 13F portfolio. Sitting at the No. 2 spot is Rajiv Jain of GQG Partners, with a $881 million position; 3% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism consist of Lone Pine Capital, Christopher Lyle’s SCGE Management and Andreas Halvorsen’s Viking Global. In terms of the portfolio weights assigned to each position Praesidium Investment Management Company allocated the biggest weight to ServiceNow Inc (NYSE:NOW), around 12% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, earmarking 11.94 percent of its 13F equity portfolio to NOW.
Consequently, key money managers have jumped into ServiceNow Inc (NYSE:NOW) headfirst. Viking Global, managed by Andreas Halvorsen, initiated the most outsized position in ServiceNow Inc (NYSE:NOW). Viking Global had $422.8 million invested in the company at the end of the quarter. Michael Sidhom’s Immersion Capital also made a $72.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Josh Resnick’s Jericho Capital Asset Management, James Parsons’s Junto Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s check out hedge fund activity in other stocks similar to ServiceNow Inc (NYSE:NOW). We will take a look at HSBC Holdings plc (NYSE:HSBC), Intuit Inc. (NASDAQ:INTU), Toronto-Dominion Bank (NYSE:TD), Sea Limited (NYSE:SE), 3M Company (NYSE:MMM), American Tower Corporation (NYSE:AMT), and The Charles Schwab Corporation (NYSE:SCHW). This group of stocks’ market values match NOW’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HSBC | 14 | 330089 | 4 |
| INTU | 68 | 4693235 | 14 |
| TD | 22 | 171021 | 7 |
| SE | 115 | 10868553 | 20 |
| MMM | 44 | 1367331 | -12 |
| AMT | 61 | 4726391 | -1 |
| SCHW | 61 | 4473211 | 8 |
| Average | 55 | 3804262 | 5.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $3804 million. That figure was $6849 million in NOW’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 14 bullish hedge fund positions. ServiceNow Inc (NYSE:NOW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NOW is 80.6. 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 positive signal but 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 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately NOW wasn’t nearly as successful as these 30 stocks and hedge funds that were betting on NOW were disappointed as the stock returned -14.5% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the more diversified list of the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
