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2019 Review: Top Hedge Fund Stocks vs. Twilio Inc. (TWLO)

Abigail Fisher

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Twilio Inc. (NYSE:TWLO)?

Twilio Inc. (NYSE:TWLO) investors should pay attention to a decrease in hedge fund sentiment recently. TWLO was in 59 hedge funds' portfolios at the end of September. There were 63 hedge funds in our database with TWLO positions at the end of the previous quarter. Our calculations also showed that TWLO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

[caption id="attachment_260193" align="aligncenter" width="450"] Keith Meister of Corvex Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to check out the recent hedge fund action surrounding Twilio Inc. (NYSE:TWLO).

What have hedge funds been doing with Twilio Inc. (NYSE:TWLO)?

Heading into the fourth quarter of 2019, a total of 59 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 41 hedge funds with a bullish position in TWLO a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Tybourne Capital Management was the largest shareholder of Twilio Inc. (NYSE:TWLO), with a stake worth $327.7 million reported as of the end of September. Trailing Tybourne Capital Management was Foxhaven Asset Management, which amassed a stake valued at $292.8 million. SCGE Management, Whale Rock Capital Management, and Tiger Global 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 Tybourne Capital Management allocated the biggest weight to Twilio Inc. (NYSE:TWLO), around 14.24% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, setting aside 11.92 percent of its 13F equity portfolio to TWLO.

Judging by the fact that Twilio Inc. (NYSE:TWLO) has experienced declining sentiment from hedge fund managers, logic holds that there is a sect of fund managers that decided to sell off their entire stakes in the third quarter. Interestingly, Michael Pausic's Foxhaven Asset Management sold off the largest position of the "upper crust" of funds tracked by Insider Monkey, worth about $65.4 million in stock, and Josh Donfeld and David Rogers's Castle Hook Partners was right behind this move, as the fund sold off about $48.7 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to Twilio Inc. (NYSE:TWLO). These stocks are Conagra Brands, Inc. (NYSE:CAG), Waters Corporation (NYSE:WAT), Mid America Apartment Communities Inc (NYSE:MAA), and Huntington Bancshares Incorporated (NASDAQ:HBAN). All of these stocks' market caps match TWLO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAG,27,681948,3 WAT,25,595467,-1 MAA,17,298982,4 HBAN,20,96244,-3 Average,22.25,418160,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $2260 million in TWLO's case. Conagra Brands, Inc. (NYSE:CAG) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Twilio Inc. (NYSE:TWLO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately TWLO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TWLO were disappointed as the stock returned 12.4% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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