Were Hedge Funds Right About Twilio Inc. (TWLO)?

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of June 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Twilio Inc. (NYSE:TWLO).

Twilio Inc. (NYSE:TWLO) shareholders have witnessed a decrease in hedge fund interest of late. Twilio Inc. (NYSE:TWLO) was in 98 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 99. Our calculations also showed that TWLO ranked 21st among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To the average investor there are many formulas investors can use to analyze publicly traded companies. A couple of the most useful formulas are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best money managers can outperform the S&P 500 by a significant margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla 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. Keeping this in mind let’s take a look at the key hedge fund action encompassing Twilio Inc. (NYSE:TWLO).

Do Hedge Funds Think TWLO Is A Good Stock To Buy Now?

At second quarter’s end, a total of 98 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TWLO over the last 24 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, ARK Investment Management held the most valuable stake in Twilio Inc. (NYSE:TWLO), which was worth $1467.3 million at the end of the second quarter. On the second spot was SCGE Management which amassed $1097 million worth of shares. Coatue Management, Matrix Capital Management, and Alkeon Capital Management 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 Jeneq Management allocated the biggest weight to Twilio Inc. (NYSE:TWLO), around 10.46% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, setting aside 10.28 percent of its 13F equity portfolio to TWLO.

Seeing as Twilio Inc. (NYSE:TWLO) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds who sold off their positions entirely last quarter. At the top of the heap, D. E. Shaw’s D E Shaw dumped the biggest investment of all the hedgies watched by Insider Monkey, worth an estimated $386.6 million in stock. Steve Zheng’s fund, Deepcurrents Investment Group, also dumped its stock, about $223.6 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Twilio Inc. (NYSE:TWLO) but similarly valued. We will take a look at Moody’s Corporation (NYSE:MCO), Banco Santander, S.A. (NYSE:SAN), VMware, Inc. (NYSE:VMW), Intercontinental Exchange Inc (NYSE:ICE), Norfolk Southern Corp. (NYSE:NSC), Bank of Montreal (NYSE:BMO), and Edwards Lifesciences Corporation (NYSE:EW). All of these stocks’ market caps resemble TWLO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $3435 million. That figure was $7891 million in TWLO’s case. Norfolk Southern Corp. (NYSE:NSC) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Twilio Inc. (NYSE:TWLO) is more popular among hedge funds. Our overall hedge fund sentiment score for TWLO is 83.7. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Unfortunately TWLO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TWLO were disappointed as the stock returned -26.1% since the end of the second quarter (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.