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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CommVault Systems, Inc. (NASDAQ:CVLT).
CommVault Systems, Inc. (NASDAQ:CVLT) investors should pay attention to an increase in enthusiasm from smart money in recent months. Our calculations also showed that CVLT isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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David E. Shaw of D.E. Shaw[/caption]
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 this one. 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 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 go over the recent hedge fund action surrounding CommVault Systems, Inc. (NASDAQ:CVLT).
What does smart money think about CommVault Systems, Inc. (NASDAQ:CVLT)?
Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVLT over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of CommVault Systems, Inc. (NASDAQ:CVLT), with a stake worth $111.7 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $54.5 million. Citadel Investment Group, AQR Capital Management, and Two Sigma Advisors 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 Cove Street Capital allocated the biggest weight to CommVault Systems, Inc. (NASDAQ:CVLT), around 2.2% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, dishing out 2.07 percent of its 13F equity portfolio to CVLT.
As one would reasonably expect, key hedge funds were breaking ground themselves. SG Capital Management, managed by Ken Grossman and Glen Schneider, initiated the largest position in CommVault Systems, Inc. (NASDAQ:CVLT). SG Capital Management had $10.5 million invested in the company at the end of the quarter. Mark Coe's Intrinsic Edge Capital also initiated a $7.1 million position during the quarter. The other funds with brand new CVLT positions are Josh Goldberg's G2 Investment Partners Management, Michael Gelband's ExodusPoint Capital, and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as CommVault Systems, Inc. (NASDAQ:CVLT) but similarly valued. We will take a look at BancFirst Corporation (NASDAQ:BANF), Patterson-UTI Energy, Inc. (NASDAQ:PTEN), Prestige Brands Holdings, Inc. (NYSE:PBH), and Myriad Genetics, Inc. (NASDAQ:MYGN). This group of stocks' market caps are similar to CVLT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BANF,6,45270,-3 PTEN,29,296456,2 PBH,14,100030,-4 MYGN,15,237000,2 Average,16,169689,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $374 million in CVLT's case. Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is the most popular stock in this table. On the other hand BancFirst Corporation (NASDAQ:BANF) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks CommVault Systems, Inc. (NASDAQ:CVLT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still managed to beat the market by 4.2 percentage points. Hedge funds were also right about betting on CVLT as the stock returned -10.3% so far in 2020 (through April 6th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.