At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Fastly, Inc. (NYSE:FSLY) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Fastly, Inc. (NYSE:FSLY) was in 27 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. FSLY investors should be aware of an increase in hedge fund interest lately. There were 22 hedge funds in our database with FSLY holdings at the end of March. Our calculations also showed that FSLY 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.
Brad Farber of Atika Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 let's review the latest hedge fund action encompassing Fastly, Inc. (NYSE:FSLY).
What does smart money think about Fastly, Inc. (NYSE:FSLY)?
Heading into the third quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in FSLY a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Abdiel Capital Advisors was the largest shareholder of Fastly, Inc. (NYSE:FSLY), with a stake worth $808.9 million reported as of the end of September. Trailing Abdiel Capital Advisors was Whale Rock Capital Management, which amassed a stake valued at $553.1 million. No Street Capital, Athanor Capital, and Citadel Investment Group 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 Abdiel Capital Advisors allocated the biggest weight to Fastly, Inc. (NYSE:FSLY), around 23.89% of its 13F portfolio. 3G Capital is also relatively very bullish on the stock, setting aside 15.39 percent of its 13F equity portfolio to FSLY.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Renaissance Technologies, founded by Jim Simons, assembled the most valuable position in Fastly, Inc. (NYSE:FSLY). Renaissance Technologies had $7.7 million invested in the company at the end of the quarter. Jorge Paulo Lemann's 3G Capital also made a $7.2 million investment in the stock during the quarter. The other funds with brand new FSLY positions are Brad Farber's Atika Capital, John Overdeck and David Siegel's Two Sigma Advisors, and Matthew L Pinz's Pinz Capital.
Let's also examine hedge fund activity in other stocks similar to Fastly, Inc. (NYSE:FSLY). We will take a look at Cna Financial Corporation (NYSE:CNA), NiSource Inc. (NYSE:NI), Equitable Holdings, Inc. (NYSE:EQH), RenaissanceRe Holdings Ltd. (NYSE:RNR), Clarivate Plc (NYSE:CCC), Charles River Laboratories International Inc. (NYSE:CRL), and Natura &Co Holding S.A. (NYSE:NTCO). All of these stocks' market caps are similar to FSLY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNA,12,48476,0 NI,21,300585,-6 EQH,39,1111581,12 RNR,41,870861,11 CCC,45,1300868,17 CRL,41,1050760,5 NTCO,5,85507,-3 Average,29.1,681234,5.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $681 million. That figure was $1662 million in FSLY's case. Clarivate Plc (NYSE:CCC) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 5 bullish hedge fund positions. Fastly, Inc. (NYSE:FSLY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FSLY is 67.5. 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. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on FSLY, though not to the same extent, as the stock returned 7.4% so far during Q3 and outperformed the market.
Get real-time email alerts: Follow Fastly Inc. (NYSE:FSLY)
Disclosure: None. This article was originally published at Insider Monkey.