In this article we will check out the progression of hedge fund sentiment towards Cloudflare, Inc. (NYSE:NET) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Cloudflare, Inc. (NYSE:NET) shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. NET was in 24 hedge funds' portfolios at the end of March. There were 22 hedge funds in our database with NET holdings at the end of the previous quarter. Our calculations also showed that NET 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the key hedge fund action encompassing Cloudflare, Inc. (NYSE:NET).
How have hedgies been trading Cloudflare, Inc. (NYSE:NET)?
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in NET a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cloudflare, Inc. (NYSE:NET) was held by Greenspring Associates, which reported holding $113.7 million worth of stock at the end of September. It was followed by Whale Rock Capital Management with a $102.6 million position. Other investors bullish on the company included Polar Capital, Jericho Capital Asset Management, and Black-and-White Capital. In terms of the portfolio weights assigned to each position Greenspring Associates allocated the biggest weight to Cloudflare, Inc. (NYSE:NET), around 47.08% of its 13F portfolio. Hidden Lake Asset Management is also relatively very bullish on the stock, dishing out 9.57 percent of its 13F equity portfolio to NET.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Whale Rock Capital Management, managed by Alex Sacerdote, established the most valuable position in Cloudflare, Inc. (NYSE:NET). Whale Rock Capital Management had $102.6 million invested in the company at the end of the quarter. Seth Wunder's Black-and-White Capital also made a $31.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Mark Moore's ThornTree Capital Partners, Renaissance Technologies, and Kevin Mok's Hidden Lake Asset Management.
Let's now review hedge fund activity in other stocks similar to Cloudflare, Inc. (NYSE:NET). We will take a look at CyrusOne Inc (NASDAQ:CONE), Service Corporation International (NYSE:SCI), PTC Inc (NASDAQ:PTC), and Algonquin Power & Utilities Corp. (NYSE:AQN). This group of stocks' market values match NET's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CONE,31,317450,-1 SCI,30,398250,12 PTC,35,1181835,0 AQN,14,253831,1 Average,27.5,537842,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $538 million. That figure was $499 million in NET's case. PTC Inc (NASDAQ:PTC) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 14 bullish hedge fund positions. Cloudflare, Inc. (NYSE:NET) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on NET, though not to the same extent, as the stock returned 25.2% during the second quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.