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Hedge Funds Are Selling Nutanix, Inc. (NTNX)

Nina Todic

Is Nutanix, Inc. (NASDAQ:NTNX) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Nutanix, Inc. (NASDAQ:NTNX) an exceptional stock to buy now? Investors who are in the know are getting less optimistic. The number of bullish hedge fund bets were trimmed by 11 in recent months. Our calculations also showed that NTNX isn't among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

[caption id="attachment_750230" align="aligncenter" width="473"] Brad Gerstner of Altimeter Capital[/caption]

Brad Gerstner Altimeter Capital

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the fresh hedge fund action surrounding Nutanix, Inc. (NASDAQ:NTNX).

What have hedge funds been doing with Nutanix, Inc. (NASDAQ:NTNX)?

At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the first quarter of 2019. On the other hand, there were a total of 34 hedge funds with a bullish position in NTNX a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

No of Hedge Funds with NTNX Positions

More specifically, Generation Investment Management was the largest shareholder of Nutanix, Inc. (NASDAQ:NTNX), with a stake worth $374.1 million reported as of the end of March. Trailing Generation Investment Management was Eminence Capital, which amassed a stake valued at $99.5 million. Altimeter Capital Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Nutanix, Inc. (NASDAQ:NTNX) has experienced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds that decided to sell off their full holdings by the end of the second quarter. At the top of the heap, Josh Donfeld and David Rogers's Castle Hook Partners said goodbye to the largest investment of the "upper crust" of funds followed by Insider Monkey, comprising about $57.5 million in stock. Alok Agrawal's fund, Bloom Tree Partners, also dumped its stock, about $28.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 11 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Nutanix, Inc. (NASDAQ:NTNX) but similarly valued. These stocks are Emcor Group Inc (NYSE:EME), Flowers Foods, Inc. (NYSE:FLO), CIT Group Inc. (NYSE:CIT), and EnLink Midstream LLC (NYSE:ENLC). This group of stocks' market valuations resemble NTNX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EME,22,351468,-4 FLO,22,201700,4 CIT,25,878786,0 ENLC,12,39620,2 Average,20.25,367894,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $644 million in NTNX's case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand EnLink Midstream LLC (NYSE:ENLC) is the least popular one with only 12 bullish hedge fund positions. Nutanix, Inc. (NASDAQ:NTNX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NTNX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NTNX were disappointed as the stock returned 1.2% during the third quarter 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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