We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Arista Networks Inc (NYSE:ANET) and determine whether hedge funds skillfully traded this stock.
Arista Networks Inc (NYSE:ANET) was in 24 hedge funds’ portfolios at the end of March. ANET investors should be aware of a decrease in hedge fund sentiment recently. There were 26 hedge funds in our database with ANET positions at the end of the previous quarter. Our calculations also showed that ANET isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are seen as worthless, old investment vehicles of years past. While there are greater than 8000 funds in operation at present, Our experts look at the top tier of this group, about 850 funds. These investment experts oversee most of the hedge fund industry’s total asset base, and by tracking their inimitable equity investments, Insider Monkey has uncovered numerous investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Brad Farber of Atika Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a gander at the recent hedge fund action surrounding Arista Networks Inc (NYSE:ANET).
How have hedgies been trading Arista Networks Inc (NYSE:ANET)?
At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in ANET a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Arista Networks Inc (NYSE:ANET), which was worth $205.2 million at the end of the third quarter. On the second spot was SoMa Equity Partners which amassed $81 million worth of shares. Polar Capital, Two Sigma Advisors, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Arista Networks Inc (NYSE:ANET), around 5.87% of its 13F portfolio. SoMa Equity Partners is also relatively very bullish on the stock, setting aside 4.55 percent of its 13F equity portfolio to ANET.
Because Arista Networks Inc (NYSE:ANET) has faced bearish sentiment from the smart money, logic holds that there is a sect of fund managers who sold off their positions entirely last quarter. At the top of the heap, Brad Farber’s Atika Capital dumped the biggest stake of all the hedgies followed by Insider Monkey, valued at about $2.5 million in stock, and Leon Shaulov’s Maplelane Capital was right behind this move, as the fund dropped about $1.6 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Arista Networks Inc (NYSE:ANET) but similarly valued. We will take a look at Arthur J. Gallagher & Co. (NYSE:AJG), Stanley Black & Decker, Inc. (NYSE:SWK), Marathon Petroleum Corp (NYSE:MPC), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). This group of stocks’ market valuations match ANET’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AJG | 28 | 373347 | -3 |
| SWK | 36 | 907916 | -5 |
| MPC | 57 | 996652 | -12 |
| CHKP | 29 | 599085 | -1 |
| Average | 37.5 | 719250 | -5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $719 million. That figure was $471 million in ANET’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Arthur J. Gallagher & Co. (NYSE:AJG) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Arista Networks Inc (NYSE:ANET) is even less popular than AJG. Hedge funds dodged a bullet by taking a bearish stance towards ANET. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately ANET wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ANET investors were disappointed as the stock returned 3.7% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
