Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Cornerstone OnDemand, Inc. (NASDAQ:CSOD) changed during the first quarter.
Is Cornerstone OnDemand, Inc. (NASDAQ:CSOD) a cheap investment now? The smart money is selling. The number of bullish hedge fund bets were trimmed by 6 recently. Our calculations also showed that CSOD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CSOD was in 21 hedge funds' portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with CSOD holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_339739" align="aligncenter" width="450"] Ricky Sandler of Eminence Capital[/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 analyze the fresh hedge fund action encompassing Cornerstone OnDemand, Inc. (NASDAQ:CSOD).
How are hedge funds trading Cornerstone OnDemand, Inc. (NASDAQ:CSOD)?
At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in CSOD a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Praesidium Investment Management was the largest shareholder of Cornerstone OnDemand, Inc. (NASDAQ:CSOD), with a stake worth $179.9 million reported as of the end of September. Trailing Praesidium Investment Management was RGM Capital, which amassed a stake valued at $100.2 million. Eminence Capital, Citadel Investment Group, and Tensile Capital 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 Sheffield Asset Management allocated the biggest weight to Cornerstone OnDemand, Inc. (NASDAQ:CSOD), around 12.77% of its 13F portfolio. Praesidium Investment Management is also relatively very bullish on the stock, dishing out 11.79 percent of its 13F equity portfolio to CSOD.
Since Cornerstone OnDemand, Inc. (NASDAQ:CSOD) has witnessed falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of hedge funds that elected to cut their entire stakes heading into Q4. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, comprising about $7 million in stock. Jay Genzer's fund, Thames Capital Management, also sold off its stock, about $5.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 6 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Cornerstone OnDemand, Inc. (NASDAQ:CSOD) but similarly valued. We will take a look at Allogene Therapeutics, Inc. (NASDAQ:ALLO), MFA Financial, Inc. (NYSE:MFA), American States Water Company (NYSE:AWR), and TopBuild Corp (NYSE:BLD). All of these stocks' market caps resemble CSOD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLO,5,110052,-3 MFA,17,97442,0 AWR,14,83986,0 BLD,17,123127,3 Average,13.25,103652,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $721 million in CSOD's case. MFA Financial, Inc. (NYSE:MFA) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CSOD as the stock returned 12.5% during the first two months of Q4 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.