Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is HubSpot Inc (NYSE:HUBS) worth your attention right now? Investors who are in the know are becoming hopeful. The number of long hedge fund positions advanced by 1 recently. Our calculations also showed that HUBS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment Group[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the key hedge fund action surrounding HubSpot Inc (NYSE:HUBS).
How are hedge funds trading HubSpot Inc (NYSE:HUBS)?
At Q3's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in HUBS a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in HubSpot Inc (NYSE:HUBS), which was worth $165.6 million at the end of the third quarter. On the second spot was SCGE Management which amassed $144.5 million worth of shares. Alkeon Capital Management, Two Sigma Advisors, 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 North Peak Capital allocated the biggest weight to HubSpot Inc (NYSE:HUBS), around 10.59% of its portfolio. SCGE Management is also relatively very bullish on the stock, setting aside 7.3 percent of its 13F equity portfolio to HUBS.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. North Peak Capital, managed by Michael Kahan and Jeremy Kahan, assembled the biggest position in HubSpot Inc (NYSE:HUBS). North Peak Capital had $24.7 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $16.1 million position during the quarter. The following funds were also among the new HUBS investors: David Harding's Winton Capital Management, Charles Clough's Clough Capital Partners, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as HubSpot Inc (NYSE:HUBS) but similarly valued. We will take a look at Momo Inc (NASDAQ:MOMO), Israel Chemicals Ltd. (NYSE:ICL), Sealed Air Corporation (NYSE:SEE), and Haemonetics Corporation (NYSE:HAE). This group of stocks' market values are similar to HUBS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOMO,27,827296,5 ICL,5,21431,-1 SEE,32,950679,5 HAE,21,601291,-2 Average,21.25,600174,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $600 million. That figure was $821 million in HUBS's case. Sealed Air Corporation (NYSE:SEE) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks HubSpot Inc (NYSE:HUBS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HUBS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HUBS were disappointed as the stock returned -0.4% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.