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Did Hedge Funds Make The Right Call On Nutanix, Inc. (NTNX) ?

Debasis Saha

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Nutanix, Inc. (NASDAQ:NTNX) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Nutanix, Inc. (NASDAQ:NTNX) worth your attention right now? Hedge funds were in a bearish mood. The number of long hedge fund positions fell by 3 lately. Our calculations also showed that NTNX 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). NTNX was in 29 hedge funds' portfolios at the end of the first quarter of 2020. There were 32 hedge funds in our database with NTNX holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are a lot of methods stock market investors employ to size up their holdings. A duo of the most innovative methods are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform the broader indices by a very impressive amount (see the details here).

[caption id="attachment_690797" align="aligncenter" width="400"] Sahm Adrangi of Kerrisdale Capital[/caption]

Sahm Adrangi Kerrisdale Capital
Sahm Adrangi Kerrisdale Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to review the fresh hedge fund action surrounding Nutanix, Inc. (NASDAQ:NTNX).

Hedge fund activity in Nutanix, Inc. (NASDAQ:NTNX)

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NTNX over the last 18 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.

Is NTNX A Good Stock To Buy?
Is NTNX A Good Stock To Buy?

Among these funds, Generation Investment Management held the most valuable stake in Nutanix, Inc. (NASDAQ:NTNX), which was worth $221.5 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $58.3 million worth of shares. Shelter Haven Capital Management, Polar Capital, and Isomer Partners 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 Shelter Haven Capital Management allocated the biggest weight to Nutanix, Inc. (NASDAQ:NTNX), around 9.79% of its 13F portfolio. Isomer Partners is also relatively very bullish on the stock, dishing out 9.03 percent of its 13F equity portfolio to NTNX.

Judging by the fact that Nutanix, Inc. (NASDAQ:NTNX) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few hedge funds that decided to sell off their positions entirely last quarter. Intriguingly, Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management said goodbye to the largest position of the 750 funds tracked by Insider Monkey, worth close to $5.1 million in stock. Sahm Adrangi's fund, Kerrisdale Capital, also dropped its stock, about $5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Nutanix, Inc. (NASDAQ:NTNX) but similarly valued. We will take a look at Mattel, Inc. (NASDAQ:MAT), FibroGen Inc (NASDAQ:FGEN), Unum Group (NYSE:UNM), and Rayonier Inc. (NYSE:RYN). All of these stocks' market caps match NTNX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAT,17,474848,-2 FGEN,22,283279,1 UNM,25,159751,-5 RYN,13,271594,-1 Average,19.25,297368,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $297 million. That figure was $440 million in NTNX's case. Unum Group (NYSE:UNM) is the most popular stock in this table. On the other hand Rayonier Inc. (NYSE:RYN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Nutanix, Inc. (NASDAQ:NTNX) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on NTNX as the stock returned 50% in Q2 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.

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