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Hedge Funds Are Selling Splunk Inc (SPLK)

·6 min read
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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Splunk Inc (NASDAQ:SPLK)? The smart money sentiment can provide an answer to this question.

Splunk Inc (NASDAQ:SPLK) investors should be aware of a decrease in enthusiasm from smart money recently. Splunk Inc (NASDAQ:SPLK) was in 41 hedge funds' portfolios at the end of March. The all time high for this statistic is 49. Our calculations also showed that SPLK isn't 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. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Harold Levy Iridian Asset Management
Harold Levy Iridian Asset Management

Harold Levy of Iridian Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. Keeping this in mind let's take a look at the fresh hedge fund action encompassing Splunk Inc (NASDAQ:SPLK).

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

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in SPLK a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Splunk Inc (NASDAQ:SPLK), which was worth $192.3 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $154.2 million worth of shares. Citadel Investment Group, Iridian Asset Management, and Millennium Management 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 Whetstone Capital Advisors allocated the biggest weight to Splunk Inc (NASDAQ:SPLK), around 5.27% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, earmarking 2.79 percent of its 13F equity portfolio to SPLK.

Since Splunk Inc (NASDAQ:SPLK) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few funds who were dropping their full holdings last quarter. At the top of the heap, Michael Kahan and Jeremy Kahan's North Peak Capital said goodbye to the biggest position of the 750 funds watched by Insider Monkey, worth about $94.9 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund dropped about $52.9 million worth. These moves are important to note, as total hedge fund interest dropped by 6 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Splunk Inc (NASDAQ:SPLK) but similarly valued. These stocks are Northern Trust Corporation (NASDAQ:NTRS), Royal Caribbean Group (NYSE:RCL), Hess Corporation (NYSE:HES), Cloudflare, Inc. (NYSE:NET), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), CarMax Inc (NYSE:KMX), and Kellogg Company (NYSE:K). This group of stocks' market caps match SPLK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTRS,28,348449,-3 RCL,42,594423,5 HES,26,556388,-7 NET,45,792469,-15 FMS,12,10933,3 KMX,46,2030896,0 K,32,557204,-5 Average,33,698680,-3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $699 million. That figure was $934 million in SPLK's case. CarMax Inc (NYSE:KMX) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 12 bullish hedge fund positions. Splunk Inc (NASDAQ:SPLK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPLK is 66.7. 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. 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 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately SPLK wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SPLK were disappointed as the stock returned -4.7% since the end of March (through 6/18) 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 many of these stocks already outperformed the market since 2019.

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