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Should I Avoid DocuSign, Inc. (DOCU)?

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With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter of 2021. One of these stocks was DocuSign, Inc. (NASDAQ:DOCU).

DocuSign, Inc. (NASDAQ:DOCU) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. DocuSign, Inc. (NASDAQ:DOCU) was in 60 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 67. There were 67 hedge funds in our database with DOCU holdings at the end of December. Our calculations also showed that DOCU isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Chase Coleman of Tiger Global

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks 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. Now we're going to analyze the recent hedge fund action encompassing DocuSign, Inc. (NASDAQ:DOCU).

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

At the end of the first quarter, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DOCU over the last 23 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, Tiger Global Management LLC was the largest shareholder of DocuSign, Inc. (NASDAQ:DOCU), with a stake worth $1042.8 million reported as of the end of March. Trailing Tiger Global Management LLC was ARK Investment Management, which amassed a stake valued at $647.4 million. Arrowstreet Capital, Citadel Investment Group, and SCGE 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 Cota Capital allocated the biggest weight to DocuSign, Inc. (NASDAQ:DOCU), around 6.45% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, designating 3.03 percent of its 13F equity portfolio to DOCU.

Judging by the fact that DocuSign, Inc. (NASDAQ:DOCU) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there exists a select few hedgies that slashed their positions entirely last quarter. Intriguingly, Lone Pine Capital dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising close to $901.7 million in stock, and David Goel and Paul Ferri's Matrix Capital Management was right behind this move, as the fund dumped about $299 million worth. These moves are interesting, as total hedge fund interest fell by 7 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as DocuSign, Inc. (NASDAQ:DOCU) but similarly valued. These stocks are Synopsys, Inc. (NASDAQ:SNPS), Kinder Morgan Inc (NYSE:KMI), General Mills, Inc. (NYSE:GIS), Simon Property Group, Inc (NYSE:SPG), Aptiv PLC (NYSE:APTV), Centene Corporation (NYSE:CNC), and IQVIA Holdings, Inc. (NYSE:IQV). All of these stocks' market caps match DOCU's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNPS,34,1655845,-6 KMI,38,1194030,-4 GIS,31,797434,-8 SPG,31,506264,-1 APTV,50,1417793,6 CNC,53,2696678,-3 IQV,62,3683858,-7 Average,42.7,1707415,-3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.7 hedge funds with bullish positions and the average amount invested in these stocks was $1707 million. That figure was $3232 million in DOCU's case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand General Mills, Inc. (NYSE:GIS) is the least popular one with only 31 bullish hedge fund positions. DocuSign, Inc. (NASDAQ:DOCU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DOCU is 71.6. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on DOCU as the stock returned 25% since the end of Q1 (through 6/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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