Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to DocuSign, Inc. (NASDAQ:DOCU) changed recently.
DocuSign, Inc. (NASDAQ:DOCU) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as AXA Equitable Holdings, Inc. (NYSE:EQH), The AES Corporation (NYSE:AES), and Everest Re Group Ltd (NYSE:RE) to gather more data points. Our calculations also showed that DOCU 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 eyes of most investors, hedge funds are seen as slow, old financial vehicles of the past. While there are over 8000 funds in operation at present, We hone in on the upper echelon of this group, around 750 funds. Most estimates calculate that this group of people have their hands on most of all hedge funds' total asset base, and by shadowing their unrivaled stock picks, Insider Monkey has identified several investment strategies that have historically outpaced the broader indices. 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 May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_365194" align="alignnone" width="600"] David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock 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. Keeping this in mind we're going to take a look at the latest hedge fund action surrounding DocuSign, Inc. (NASDAQ:DOCU).
Hedge fund activity in DocuSign, Inc. (NASDAQ:DOCU)
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DOCU over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of DocuSign, Inc. (NASDAQ:DOCU), with a stake worth $222.3 million reported as of the end of September. Trailing D E Shaw was Matrix Capital Management, which amassed a stake valued at $107.8 million. Jericho Capital Asset Management, Millennium Management, and Renaissance Technologies 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 ThornTree Capital Partners allocated the biggest weight to DocuSign, Inc. (NASDAQ:DOCU), around 12.04% of its 13F portfolio. Jericho Capital Asset Management is also relatively very bullish on the stock, dishing out 4.4 percent of its 13F equity portfolio to DOCU.
Judging by the fact that DocuSign, Inc. (NASDAQ:DOCU) has experienced a decline in interest from the smart money, it's easy to see that there is a sect of funds who were dropping their positions entirely in the third quarter. Intriguingly, David Fiszel's Honeycomb Asset Management dumped the biggest position of the 750 funds watched by Insider Monkey, valued at an estimated $36.8 million in stock, and Nick Niell's Arrowgrass Capital Partners was right behind this move, as the fund sold off about $18.4 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to DocuSign, Inc. (NASDAQ:DOCU). We will take a look at AXA Equitable Holdings, Inc. (NYSE:EQH), The AES Corporation (NYSE:AES), Everest Re Group Ltd (NYSE:RE), and Varian Medical Systems, Inc. (NYSE:VAR). This group of stocks' market valuations are closest to DOCU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQH,21,1062610,-11 AES,24,441027,-3 RE,21,667060,-2 VAR,27,381320,2 Average,23.25,638004,-3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $674 million in DOCU's case. Varian Medical Systems, Inc. (NYSE:VAR) is the most popular stock in this table. On the other hand AXA Equitable Holdings, Inc. (NYSE:EQH) is the least popular one with only 21 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 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 10.1 percentage points. Hedge funds were also right about betting on DOCU as the stock returned 84.9% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.