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Hedge Funds Have Never Been This Bullish On Twilio Inc. (TWLO)

·6 min read

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Twilio Inc. (NYSE:TWLO) to find out whether there were any major changes in hedge funds' views.

Twilio Inc. (NYSE:TWLO) investors should be aware of an increase in hedge fund interest lately. Twilio Inc. (NYSE:TWLO) was in 99 hedge funds' portfolios at the end of March. The all time high for this statistic was previously 94. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 94 hedge funds in our database with TWLO positions at the end of the fourth quarter. Our calculations also showed that TWLO ranked 20th among the 30 most popular stocks among hedge funds (click for Q1 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 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 115 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.

Cathie Wood ARK Investment Management
Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell 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. 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 homepage. With all of this in mind we're going to take a peek at the recent hedge fund action regarding Twilio Inc. (NYSE:TWLO).

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

Heading into the second quarter of 2021, a total of 99 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TWLO over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Twilio Inc. (NYSE:TWLO) was held by SCGE Management, which reported holding $948.4 million worth of stock at the end of December. It was followed by ARK Investment Management with a $932.7 million position. Other investors bullish on the company included Alkeon Capital Management, D E Shaw, and Foxhaven Asset Management. In terms of the portfolio weights assigned to each position SCGE Management allocated the biggest weight to Twilio Inc. (NYSE:TWLO), around 10.64% of its 13F portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, setting aside 10.02 percent of its 13F equity portfolio to TWLO.

There weren't any hedge funds initiating brand new positions in the stock during the first quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Twilio Inc. (NYSE:TWLO) but similarly valued. We will take a look at Takeda Pharmaceutical Company Limited (NYSE:TAK), Bank of Montreal (NYSE:BMO), Analog Devices, Inc. (NASDAQ:ADI), Illumina, Inc. (NASDAQ:ILMN), The Progressive Corporation (NYSE:PGR), Moody's Corporation (NYSE:MCO), and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). This group of stocks' market valuations match TWLO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TAK,19,860444,1 BMO,15,204401,4 ADI,50,4860676,-8 ILMN,52,1595824,7 PGR,45,1211037,-3 MCO,55,13726876,-4 VRTX,68,3711731,15 Average,43.4,3738713,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.4 hedge funds with bullish positions and the average amount invested in these stocks was $3739 million. That figure was $5812 million in TWLO's case. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Twilio Inc. (NYSE:TWLO) is more popular among hedge funds. Our overall hedge fund sentiment score for TWLO is 90.5. 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 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Unfortunately TWLO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TWLO were disappointed as the stock returned -2.4% since the end of the first quarter (through 6/11) 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 most of these stocks already outperformed the market since 2019.

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

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