While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Unity Software Inc. (NYSE:U).
Is U stock a buy? Unity Software Inc. (NYSE:U) was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 35. U investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. There were 35 hedge funds in our database with U holdings at the end of September. Our calculations also showed that U isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
In the eyes of most stock holders, hedge funds are viewed as unimportant, outdated financial vehicles of years past. While there are greater than 8000 funds trading at the moment, Our researchers hone in on the moguls of this club, around 850 funds. These money managers shepherd the majority of all hedge funds’ total capital, and by watching their highest performing investments, Insider Monkey has spotted various investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 11 short targets in our latest quarterly update .
Daniel Sundheim of D1 Capital Partners
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. Now we’re going to check out the new hedge fund action regarding Unity Software Inc. (NYSE:U).
Do Hedge Funds Think U Is A Good Stock To Buy Now?
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards U over the last 22 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Unity Software Inc. (NYSE:U) was held by Silver Lake Partners, which reported holding $6646 million worth of stock at the end of December. It was followed by D1 Capital Partners with a $1990 million position. Other investors bullish on the company included Light Street Capital, Altimeter Capital Management, and Thrive Capital. In terms of the portfolio weights assigned to each position Thrive Capital allocated the biggest weight to Unity Software Inc. (NYSE:U), around 58.38% of its 13F portfolio. Silver Lake Partners is also relatively very bullish on the stock, designating 57.24 percent of its 13F equity portfolio to U.
Seeing as Unity Software Inc. (NYSE:U) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that elected to cut their positions entirely last quarter. Interestingly, George Soros’s Soros Fund Management dumped the largest position of the 750 funds tracked by Insider Monkey, worth close to $26.2 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund cut about $23.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Unity Software Inc. (NYSE:U) but similarly valued. These stocks are DocuSign, Inc. (NASDAQ:DOCU), Moderna, Inc. (NASDAQ:MRNA), American Electric Power Company, Inc. (NYSE:AEP), Veeva Systems Inc (NYSE:VEEV), Exelon Corporation (NYSE:EXC), Dow Inc. (NYSE:DOW), and Carvana Co. (NYSE:CVNA). This group of stocks’ market values resemble U’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DOCU | 67 | 4232054 | 5 |
| MRNA | 41 | 1479400 | 9 |
| AEP | 32 | 331817 | 2 |
| VEEV | 36 | 884354 | -2 |
| EXC | 30 | 729348 | 1 |
| DOW | 47 | 711306 | 5 |
| CVNA | 63 | 7071672 | 10 |
| Average | 45.1 | 2205707 | 4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.1 hedge funds with bullish positions and the average amount invested in these stocks was $2206 million. That figure was $11909 million in U’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Exelon Corporation (NYSE:EXC) is the least popular one with only 30 bullish hedge fund positions. Unity Software Inc. (NYSE:U) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for U is 32.1. 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 U wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); U investors were disappointed as the stock returned -36.1% 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.
