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Hedge Funds Are Piling Into Upstart Holdings, Inc. (UPST)

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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Upstart Holdings, Inc. (NASDAQ:UPST).

Is Upstart Holdings, Inc. (NASDAQ:UPST) going to take off soon? The best stock pickers were in a bullish mood. The number of bullish hedge fund bets went up by 8 in recent months. Upstart Holdings, Inc. (NASDAQ:UPST) was in 21 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that UPST isn't among the 30 most popular stocks among hedge funds (click for Q2 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Brad Farber Atika Capital
Brad Farber Atika Capital

Brad Farber of Atika Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 let's take a gander at the recent hedge fund action encompassing Upstart Holdings, Inc. (NASDAQ:UPST).

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

At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 62% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in UPST a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is UPST A Good Stock To Buy?
Is UPST A Good Stock To Buy?

The largest stake in Upstart Holdings, Inc. (NASDAQ:UPST) was held by Third Point, which reported holding $1671.3 million worth of stock at the end of June. It was followed by D E Shaw with a $168.6 million position. Other investors bullish on the company included Renaissance Technologies, Kuvari Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Kuvari Partners allocated the biggest weight to Upstart Holdings, Inc. (NASDAQ:UPST), around 31.8% of its 13F portfolio. Third Point is also relatively very bullish on the stock, designating 9.78 percent of its 13F equity portfolio to UPST.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Renaissance Technologies, assembled the largest position in Upstart Holdings, Inc. (NASDAQ:UPST). Renaissance Technologies had $83.4 million invested in the company at the end of the quarter. Vikram Kumar's Kuvari Partners also initiated a $81.2 million position during the quarter. The other funds with brand new UPST positions are Steve Cohen's Point72 Asset Management, Brad Farber's Atika Capital, and Brian Ashford-Russell and Tim Woolley's Polar Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Upstart Holdings, Inc. (NASDAQ:UPST) but similarly valued. These stocks are Americold Realty Trust (NYSE:COLD), First Horizon National Corporation (NYSE:FHN), Denali Therapeutics Inc. (NASDAQ:DNLI), Braskem SA (NYSE:BAK), Arrival (NASDAQ:ARVL), Aramark (NYSE:ARMK), and Canopy Growth Corporation (NYSE:CGC). This group of stocks' market caps match UPST's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COLD,16,530325,0 FHN,27,151649,0 DNLI,22,300703,-4 BAK,6,16591,-2 ARVL,17,117875,3 ARMK,36,1125117,-3 CGC,16,171734,4 Average,20,344856,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $345 million. That figure was $2135 million in UPST's case. Aramark (NYSE:ARMK) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 6 bullish hedge fund positions. Upstart Holdings, Inc. (NASDAQ:UPST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UPST is 65. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on UPST as the stock returned 174.3% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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