Is Avalara, Inc. (NYSE:AVLR) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Avalara, Inc. (NYSE:AVLR) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. Our calculations also showed that AVLR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings, see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let's take a look at the latest hedge fund action regarding Avalara, Inc. (NYSE:AVLR).
What have hedge funds been doing with Avalara, Inc. (NYSE:AVLR)?
Heading into the fourth quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AVLR over the last 17 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 Avalara, Inc. (NYSE:AVLR) was held by Alkeon Capital Management, which reported holding $223.1 million worth of stock at the end of September. It was followed by Whale Rock Capital Management with a $197.3 million position. Other investors bullish on the company included Renaissance Technologies, Tensile Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 10.38% of its portfolio. Calixto Global Investors is also relatively very bullish on the stock, dishing out 7.28 percent of its 13F equity portfolio to AVLR.
As aggregate interest increased, key money managers were breaking ground themselves. Maplelane Capital, managed by Leon Shaulov, created the most valuable call position in Avalara, Inc. (NYSE:AVLR). Maplelane Capital had $22.5 million invested in the company at the end of the quarter. Eduardo Costa's Calixto Global Investors also initiated a $9.4 million position during the quarter. The other funds with brand new AVLR positions are Peter Muller's PDT Partners, Seth Wunder's Black-and-White Capital, and Seymour Sy Kaufman and Michael Stark's Crosslink Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Avalara, Inc. (NYSE:AVLR) but similarly valued. We will take a look at Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), bluebird bio Inc (NASDAQ:BLUE), ONE Gas Inc (NYSE:OGS), and Globus Medical Inc (NYSE:GMED). This group of stocks' market values are similar to AVLR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TKC,5,5614,-2 BLUE,16,146471,-6 OGS,17,95793,3 GMED,21,258701,2 Average,14.75,126645,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $1103 million in AVLR's case. Globus Medical Inc (NYSE:GMED) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Avalara, Inc. (NYSE:AVLR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on AVLR as the stock returned 13.5% during Q4 (through 11/22) 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.
Disclosure: None. This article was originally published at Insider Monkey.