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. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of New Relic Inc (NYSE:NEWR).
New Relic Inc (NYSE:NEWR) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that NEWR 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.
[caption id="attachment_26088" align="aligncenter" width="399"] Chase Coleman of Tiger Global[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let's take a peek at the key hedge fund action regarding New Relic Inc (NYSE:NEWR).
Hedge fund activity in New Relic Inc (NYSE:NEWR)
At the end of the fourth quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in NEWR a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Eminence Capital held the most valuable stake in New Relic Inc (NYSE:NEWR), which was worth $165.7 million at the end of the third quarter. On the second spot was Holocene Advisors which amassed $104.3 million worth of shares. Tiger Global Management LLC, HMI 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 Toronado Partners allocated the biggest weight to New Relic Inc (NYSE:NEWR), around 9.73% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, setting aside 7.58 percent of its 13F equity portfolio to NEWR.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Eminence Capital, managed by Ricky Sandler, created the largest position in New Relic Inc (NYSE:NEWR). Eminence Capital had $165.7 million invested in the company at the end of the quarter. Mick Hellman's HMI Capital also made a $85.4 million investment in the stock during the quarter. The following funds were also among the new NEWR investors: Andrew Kurita's Kettle Hill Capital Management, Amit Nitin Doshi's Harbor Spring Capital, and Guy Shahar's DSAM Partners.
Let's now review hedge fund activity in other stocks similar to New Relic Inc (NYSE:NEWR). We will take a look at FirstService Corporation (NASDAQ:FSV), Laureate Education, Inc. (NASDAQ:LAUR), Outfront Media Inc (NYSE:OUT), and Chimera Investment Corporation (NYSE:CIM). This group of stocks' market caps are closest to NEWR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FSV,12,170393,-1 LAUR,34,360118,7 OUT,31,486631,-2 CIM,14,123344,1 Average,22.75,285122,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $934 million in NEWR's case. Laureate Education, Inc. (NASDAQ:LAUR) is the most popular stock in this table. On the other hand FirstService Corporation (NASDAQ:FSV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks New Relic Inc (NYSE:NEWR) 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately NEWR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NEWR were disappointed as the stock returned -28.5% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. 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.