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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Guidewire Software Inc (NYSE:GWRE) based on those filings.
Is GWRE stock a buy? Guidewire Software Inc (NYSE:GWRE) investors should pay attention to an increase in activity from the world's largest hedge funds in recent months. Guidewire Software Inc (NYSE:GWRE) was in 35 hedge funds' portfolios at the end of December. The all time high for this statistic is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 34 hedge funds in our database with GWRE holdings at the end of September. Our calculations also showed that GWRE isn't among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).
Israel Englander of Millennium 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 under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. With all of this in mind let's analyze the fresh hedge fund action encompassing Guidewire Software Inc (NYSE:GWRE).
Do Hedge Funds Think GWRE Is A Good Stock To Buy Now?
At Q4's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GWRE over the last 22 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Stockbridge Partners held the most valuable stake in Guidewire Software Inc (NYSE:GWRE), which was worth $575.6 million at the end of the fourth quarter. On the second spot was Darsana Capital Partners which amassed $289.6 million worth of shares. Route One Investment Company, Skye Global Management, and Matrix Capital 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 Anabranch Capital allocated the biggest weight to Guidewire Software Inc (NYSE:GWRE), around 23.82% of its 13F portfolio. Stockbridge Partners is also relatively very bullish on the stock, earmarking 13.55 percent of its 13F equity portfolio to GWRE.
As one would reasonably expect, specific money managers have been driving this bullishness. Anabranch Capital, managed by Alexander Shapiro, initiated the largest position in Guidewire Software Inc (NYSE:GWRE). Anabranch Capital had $38.7 million invested in the company at the end of the quarter. Eric W. Mandelblatt and Gaurav Kapadia's Soroban Capital Partners also made a $33.6 million investment in the stock during the quarter. The other funds with brand new GWRE positions are Israel Englander's Millennium Management, Renaissance Technologies, and Neil Mehta's Greanoaks Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Guidewire Software Inc (NYSE:GWRE) but similarly valued. These stocks are Pegasystems Inc. (NASDAQ:PEGA), LKQ Corporation (NASDAQ:LKQ), Allegion plc (NYSE:ALLE), Lumen Technologies, Inc. (NYSE:LUMN), Advance Auto Parts, Inc. (NYSE:AAP), Zynga Inc (NASDAQ:ZNGA), and News Corp (NASDAQ:NWSA). This group of stocks' market caps match GWRE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEGA,32,2099135,0 LKQ,50,1611034,-1 ALLE,27,845921,-5 LUMN,29,772132,-2 AAP,36,1352541,-6 ZNGA,52,1002909,4 NWSA,32,703034,1 Average,36.9,1198101,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.9 hedge funds with bullish positions and the average amount invested in these stocks was $1198 million. That figure was $1577 million in GWRE's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Allegion plc (NYSE:ALLE) is the least popular one with only 27 bullish hedge fund positions. Guidewire Software Inc (NYSE:GWRE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GWRE is 52. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and surpassed the market again by 0.4 percentage points. Unfortunately GWRE wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); GWRE investors were disappointed as the stock returned -20.4% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.