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These Hedge Funds Dumped DocuSign, Inc. (DOCU) Before Its Large Q4 Loss

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  • DOCU

We at Insider Monkey have gone over 867 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of DocuSign, Inc. (NASDAQ:DOCU) based on that data.

Is DocuSign, Inc. (NASDAQ:DOCU) ready to rally soon? The best stock pickers were becoming less hopeful. The number of long hedge fund bets dropped by 7 in recent months. DocuSign, Inc. (NASDAQ:DOCU) was in 51 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 67. Our calculations also showed that DOCU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a gander at the fresh hedge fund action encompassing DocuSign, Inc. (NASDAQ:DOCU).

Michael Gelband of ExodusPoint Capital

Do Hedge Funds Think DOCU Is A Good Stock To Buy Now?

At Q3's end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the second quarter of 2021. By comparison, 62 hedge funds held shares or bullish call options in DOCU a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Tiger Global Management LLC was the largest shareholder of DocuSign, Inc. (NASDAQ:DOCU), with a stake worth $1881.4 million reported as of the end of September. Trailing Tiger Global Management LLC was ARK Investment Management, which amassed a stake valued at $468.9 million. Citadel Investment Group, Arrowstreet Capital, and SCGE 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 Cota Capital allocated the biggest weight to DocuSign, Inc. (NASDAQ:DOCU), around 7.3% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, dishing out 6.07 percent of its 13F equity portfolio to DOCU.

Because DocuSign, Inc. (NASDAQ:DOCU) has experienced declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of money managers who were dropping their entire stakes last quarter. It's worth mentioning that Brandon Haley's Holocene Advisors said goodbye to the largest position of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $61.5 million in stock, and Daryl Smith's Kayak Investment Partners was right behind this move, as the fund said goodbye to about $29.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds last quarter.

Let's now review hedge fund activity in other stocks similar to DocuSign, Inc. (NASDAQ:DOCU). These stocks are MSCI Inc (NYSE:MSCI), Canadian Imperial Bank of Commerce (NYSE:CM), Humana Inc (NYSE:HUM), Marvell Technology, Inc. (NASDAQ:MRVL), Dollar General Corp. (NYSE:DG), Banco Santander (Brasil) SA (NYSE:BSBR), and Johnson Controls International plc (NYSE:JCI). This group of stocks' market values match DOCU's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSCI,43,997992,6 CM,13,289714,-2 HUM,60,2900740,1 MRVL,45,1152936,-6 DG,46,1905639,1 BSBR,8,10442,1 JCI,45,1031579,6 Average,37.1,1184149,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.1 hedge funds with bullish positions and the average amount invested in these stocks was $1184 million. That figure was $4238 million in DOCU's case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 8 bullish hedge fund positions. DocuSign, Inc. (NASDAQ:DOCU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DOCU is 62.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately DOCU wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DOCU were disappointed as the stock returned -4.3% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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