The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Nutanix, Inc. (NASDAQ:NTNX) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Nutanix, Inc. (NASDAQ:NTNX) has seen a decrease in activity from the world's largest hedge funds in recent months. Nutanix, Inc. (NASDAQ:NTNX) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistics is 39. Our calculations also showed that NTNX isn't among the 30 most popular stocks among hedge funds (click for Q2 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 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 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 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.
Michael Stark of Crosslink Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to take a look at the new hedge fund action regarding Nutanix, Inc. (NASDAQ:NTNX).
How have hedgies been trading Nutanix, Inc. (NASDAQ:NTNX)?
At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in NTNX a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Nutanix, Inc. (NASDAQ:NTNX) was held by Generation Investment Management, which reported holding $365.9 million worth of stock at the end of September. It was followed by Isomer Partners with a $45 million position. Other investors bullish on the company included Citadel Investment Group, Crosslink Capital, and Polar Capital. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Nutanix, Inc. (NASDAQ:NTNX), around 12.03% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, designating 6.45 percent of its 13F equity portfolio to NTNX.
Because Nutanix, Inc. (NASDAQ:NTNX) has faced a decline in interest from hedge fund managers, it's easy to see that there lies a certain "tier" of funds who sold off their entire stakes by the end of the second quarter. It's worth mentioning that Ricky Sandler's Eminence Capital cut the biggest position of the "upper crust" of funds monitored by Insider Monkey, valued at about $58.3 million in stock. Jerry Kochanski's fund, Shelter Haven Capital Management, also dropped its stock, about $25.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 9 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Nutanix, Inc. (NASDAQ:NTNX). We will take a look at HollyFrontier Corporation (NYSE:HFC), CRISPR Therapeutics AG (NASDAQ:CRSP), The Gap Inc. (NYSE:GPS), Terminix Global Holdings Inc (NYSE:SERV), Primerica, Inc. (NYSE:PRI), Targa Resources Corp (NYSE:TRGP), and BlackLine, Inc. (NASDAQ:BL). This group of stocks' market values match NTNX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HFC,27,273880,3 CRSP,31,296881,0 GPS,38,459419,14 SERV,35,725891,4 PRI,25,385205,2 TRGP,31,289537,2 BL,18,227498,0 Average,29.3,379759,3.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $380 million. That figure was $585 million in NTNX's case. The Gap Inc. (NYSE:GPS) is the most popular stock in this table. On the other hand BlackLine, Inc. (NASDAQ:BL) is the least popular one with only 18 bullish hedge fund positions. Nutanix, Inc. (NASDAQ:NTNX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NTNX is 11.4. 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 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately NTNX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NTNX investors were disappointed as the stock returned -6.4% in the third 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 10 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.