How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Eventbrite, Inc. (NYSE:EB) and determine whether hedge funds had an edge regarding this stock.
Eventbrite, Inc. (NYSE:EB) has experienced an increase in enthusiasm from smart money of late. EB was in 25 hedge funds' portfolios at the end of March. There were 24 hedge funds in our database with EB holdings at the end of the previous quarter. Our calculations also showed that EB 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 58 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.
[caption id="attachment_88925" align="aligncenter" width="400"] Bill Miller of Miller Value Partners[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let's analyze the fresh hedge fund action surrounding Eventbrite, Inc. (NYSE:EB).
How have hedgies been trading Eventbrite, Inc. (NYSE:EB)?
Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EB over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Foxhaven Asset Management was the largest shareholder of Eventbrite, Inc. (NYSE:EB), with a stake worth $30.9 million reported as of the end of September. Trailing Foxhaven Asset Management was Immersion Capital, which amassed a stake valued at $28.9 million. Cadian Capital, Echo Street Capital Management, and Luminus 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 Immersion Capital allocated the biggest weight to Eventbrite, Inc. (NYSE:EB), around 3.94% of its 13F portfolio. Foxhaven Asset Management is also relatively very bullish on the stock, designating 1.66 percent of its 13F equity portfolio to EB.
As one would reasonably expect, key money managers have jumped into Eventbrite, Inc. (NYSE:EB) headfirst. Luminus Management, managed by Jonathan Barrett and Paul Segal, initiated the biggest position in Eventbrite, Inc. (NYSE:EB). Luminus Management had $5.6 million invested in the company at the end of the quarter. J. Carlo Cannell's Cannell Capital also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, Mario Cibelli's Marathon Partners, and Lee Ainslie's Maverick Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Eventbrite, Inc. (NYSE:EB) but similarly valued. We will take a look at Triumph Bancorp Inc (NASDAQ:TBK), Eagle Pharmaceuticals Inc (NASDAQ:EGRX), The Andersons, Inc. (NASDAQ:ANDE), and Retrophin Inc (NASDAQ:RTRX). This group of stocks' market values resemble EB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TBK,6,24013,-1 EGRX,15,108673,1 ANDE,6,10449,-7 RTRX,22,257866,0 Average,12.25,100250,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $134 million in EB's case. Retrophin Inc (NASDAQ:RTRX) is the most popular stock in this table. On the other hand Triumph Bancorp Inc (NASDAQ:TBK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Eventbrite, Inc. (NYSE:EB) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately EB wasn't nearly as popular as these 10 stocks and hedge funds that were betting on EB were disappointed as the stock returned 17.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.