The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Avalara, Inc. (NYSE:AVLR).
Is Avalara, Inc. (NYSE:AVLR) a buy right now? Hedge funds are becoming less confident. The number of long hedge fund bets were trimmed by 13 lately. Our calculations also showed that AVLR 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). AVLR was in 34 hedge funds' portfolios at the end of the first quarter of 2020. There were 47 hedge funds in our database with AVLR positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26073" align="aligncenter" width="400"] Jim Simons of Renaissance Technologies[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to review the fresh hedge fund action encompassing Avalara, Inc. (NYSE:AVLR).
How have hedgies been trading Avalara, Inc. (NYSE:AVLR)?
At Q1's end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AVLR over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of Avalara, Inc. (NYSE:AVLR), with a stake worth $178.2 million reported as of the end of September. Trailing Alkeon Capital Management was Renaissance Technologies, which amassed a stake valued at $171.8 million. Whale Rock Capital Management, Tensile Capital, and D E Shaw 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 Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 20.32% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, dishing out 10.72 percent of its 13F equity portfolio to AVLR.
Because Avalara, Inc. (NYSE:AVLR) has faced falling interest from the smart money, we can see that there was a specific group of hedge funds that elected to cut their full holdings by the end of the third quarter. Interestingly, Spencer M. Waxman's Shannon River Fund Management cut the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $22.2 million in stock. Ryan Tolkin (CIO)'s fund, Schonfeld Strategic Advisors, also dropped its stock, about $10.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 13 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to Avalara, Inc. (NYSE:AVLR). These stocks are MGM Resorts International (NYSE:MGM), Post Holdings Inc (NYSE:POST), HubSpot Inc (NYSE:HUBS), and Royal Gold, Inc (NASDAQ:RGLD). This group of stocks' market valuations match AVLR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGM,50,943490,0 POST,31,1195411,-7 HUBS,27,662117,-3 RGLD,28,237256,-2 Average,34,759569,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $760 million. That figure was $970 million in AVLR's case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand HubSpot Inc (NYSE:HUBS) is the least popular one with only 27 bullish hedge fund positions. Avalara, Inc. (NYSE:AVLR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on AVLR as the stock returned 43.5% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.