We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Splunk Inc (NASDAQ:SPLK)? The smart money sentiment can provide an answer to this question.
Splunk Inc (NASDAQ:SPLK) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that SPLK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are dozens of indicators market participants can use to grade stocks. Two of the most useful indicators are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best money managers can trounce the S&P 500 by a very impressive amount (see the details here).
Ken Griffin of Citadel Investment Group
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 go over the new hedge fund action encompassing Splunk Inc (NASDAQ:SPLK).
How are hedge funds trading Splunk Inc (NASDAQ:SPLK)?
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in SPLK a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Splunk Inc (NASDAQ:SPLK) was held by Jericho Capital Asset Management, which reported holding $103.6 million worth of stock at the end of September. It was followed by Polar Capital with a $66.3 million position. Other investors bullish on the company included Citadel Investment Group, PEAK6 Capital Management, and Iridian Asset Management. In terms of the portfolio weights assigned to each position Kayak Investment Partners allocated the biggest weight to Splunk Inc (NASDAQ:SPLK), around 7.54% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, dishing out 6.27 percent of its 13F equity portfolio to SPLK.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Jericho Capital Asset Management, managed by Josh Resnick, established the most outsized position in Splunk Inc (NASDAQ:SPLK). Jericho Capital Asset Management had $103.6 million invested in the company at the end of the quarter. David Cohen and Harold Levy’s Iridian Asset Management also made a $63 million investment in the stock during the quarter. The other funds with brand new SPLK positions are Jacob Doft’s Highline Capital Management, Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali’s Alta Park Capital, and Steve Cohen’s Point72 Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to Splunk Inc (NASDAQ:SPLK). These stocks are TELUS Corporation (NYSE:TU), Synchrony Financial (NYSE:SYF), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Coca-Cola European Partners plc (NYSE:CCEP). This group of stocks’ market values are similar to SPLK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TU | 13 | 254674 | -7 |
| SYF | 44 | 2269786 | -5 |
| CMG | 48 | 3903315 | 5 |
| CCEP | 21 | 222283 | 4 |
| Average | 31.5 | 1662515 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1663 million. That figure was $539 million in SPLK’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 13 bullish hedge fund positions. Splunk Inc (NASDAQ:SPLK) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately SPLK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SPLK were disappointed as the stock returned -19.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
