Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Bill.com Holdings, Inc. (NYSE:BILL)? The smart money sentiment can provide an answer to this question.
Is BILL a good stock to buy now? Bill.com Holdings, Inc. (NYSE:BILL) investors should pay attention to a decrease in hedge fund sentiment lately. Bill.com Holdings, Inc. (NYSE:BILL) was in 44 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 52. Our calculations also showed that BILL isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
To most investors, hedge funds are perceived as underperforming, outdated investment tools of yesteryear. While there are over 8000 funds with their doors open at the moment, We hone in on the masters of this group, approximately 850 funds. These money managers orchestrate the majority of the smart money's total capital, and by tailing their unrivaled stock picks, Insider Monkey has uncovered various investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Alex Sacerdote of Whale Rock Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now we're going to take a look at the new hedge fund action regarding Bill.com Holdings, Inc. (NYSE:BILL).
Do Hedge Funds Think BILL Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in BILL over the last 21 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Bill.com Holdings, Inc. (NYSE:BILL) was held by Whale Rock Capital Management, which reported holding $365.8 million worth of stock at the end of September. It was followed by Abdiel Capital Advisors with a $228.9 million position. Other investors bullish on the company included Lone Pine Capital, Viking Global, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Napier Park Global Capital allocated the biggest weight to Bill.com Holdings, Inc. (NYSE:BILL), around 61.02% of its 13F portfolio. 3G Capital is also relatively very bullish on the stock, earmarking 13.43 percent of its 13F equity portfolio to BILL.
Due to the fact that Bill.com Holdings, Inc. (NYSE:BILL) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there were a few fund managers who sold off their positions entirely heading into Q4. Intriguingly, Gabriel Plotkin's Melvin Capital Management dropped the largest position of all the hedgies followed by Insider Monkey, valued at close to $22.6 million in stock, and Ravee Mehta's Nishkama Capital was right behind this move, as the fund cut about $12.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 8 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Bill.com Holdings, Inc. (NYSE:BILL) but similarly valued. These stocks are BorgWarner Inc. (NYSE:BWA), Snap-on Incorporated (NYSE:SNA), Dropbox, Inc. (NASDAQ:DBX), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), Everest Re Group Ltd (NYSE:RE), and Royal Gold, Inc (NASDAQ:RGLD). This group of stocks' market valuations resemble BILL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BWA,30,797912,-5 SNA,24,407096,4 DBX,43,992075,-8 MLCO,34,823821,2 JAZZ,28,1259384,-6 RE,36,526484,7 RGLD,30,352094,3 Average,32.1,736981,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.1 hedge funds with bullish positions and the average amount invested in these stocks was $737 million. That figure was $1555 million in BILL's case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Snap-on Incorporated (NYSE:SNA) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Bill.com Holdings, Inc. (NYSE:BILL) is more popular among hedge funds. Our overall hedge fund sentiment score for BILL is 72.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on BILL as the stock returned 31.2% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.