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Hedge Funds Cashing Out Of HubSpot Inc (HUBS)

Abigail Fisher

In this article you are going to find out whether hedge funds think HubSpot Inc (NYSE:HUBS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is HubSpot Inc (NYSE:HUBS) a cheap investment now? Hedge funds are becoming less confident. The number of long hedge fund positions went down by 3 in recent months. Our calculations also showed that HUBS 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). HUBS was in 27 hedge funds' portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with HUBS positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'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.

[caption id="attachment_735641" align="aligncenter" width="393"] Michael Lowenstein of Kensico Capital[/caption]

Michael Lowenstein Kensico Capital

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. With all of this in mind let's take a gander at the key hedge fund action encompassing HubSpot Inc (NYSE:HUBS).

How are hedge funds trading HubSpot Inc (NYSE:HUBS)?

At Q1's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HUBS 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.

The largest stake in HubSpot Inc (NYSE:HUBS) was held by SCGE Management, which reported holding $178.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $122.6 million position. Other investors bullish on the company included Lone Pine Capital, Two Sigma Advisors, and Polar Capital. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to HubSpot Inc (NYSE:HUBS), around 16.62% of its 13F portfolio. Diker Management is also relatively very bullish on the stock, earmarking 7.53 percent of its 13F equity portfolio to HUBS.

Due to the fact that HubSpot Inc (NYSE:HUBS) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers that slashed their full holdings by the end of the first quarter. At the top of the heap, David Fiszel's Honeycomb Asset Management said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, worth close to $23.8 million in stock. Steve Cohen's fund, Point72 Asset Management, also said goodbye to its stock, about $15.6 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds by the end of the first quarter.

Let's also examine hedge fund activity in other stocks similar to HubSpot Inc (NYSE:HUBS). We will take a look at Royal Gold, Inc (NASDAQ:RGLD), AGNC Investment Corp. (NASDAQ:AGNC), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), and The Scotts Miracle-Gro Company (NYSE:SMG). This group of stocks' market valuations are similar to HUBS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGLD,28,237256,-2 AGNC,27,302699,6 MLCO,28,482233,-7 SMG,28,256079,-3 Average,27.75,319567,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $662 million in HUBS's case. Royal Gold, Inc (NASDAQ:RGLD) is the most popular stock in this table. On the other hand AGNC Investment Corp. (NASDAQ:AGNC) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks HubSpot Inc (NYSE:HUBS) is even less popular than AGNC. Hedge funds clearly dropped the ball on HUBS as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on HUBS as the stock returned 50.1% so far in the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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