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Here is What Hedge Funds Think About Unity Software Inc. (U)

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  • U

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Unity Software Inc. (NYSE:U).

Unity Software Inc. (NYSE:U) investors should pay attention to an increase in enthusiasm from smart money lately. Unity Software Inc. (NYSE:U) was in 36 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 39. There were 29 hedge funds in our database with U positions at the end of the second quarter. Our calculations also showed that U isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now we're going to analyze the recent hedge fund action encompassing Unity Software Inc. (NYSE:U).

Brad Gerstner Altimeter Capital
Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

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

Heading into the fourth quarter of 2021, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards U over the last 25 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Silver Lake Partners was the largest shareholder of Unity Software Inc. (NYSE:U), with a stake worth $5148.4 million reported as of the end of September. Trailing Silver Lake Partners was ARK Investment Management, which amassed a stake valued at $1503.5 million. Altimeter Capital Management, Jasper Ridge Partners, and Marcho Partners 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 Silver Lake Partners allocated the biggest weight to Unity Software Inc. (NYSE:U), around 31.61% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, setting aside 9.57 percent of its 13F equity portfolio to U.

As aggregate interest increased, key hedge funds were leading the bulls' herd. Jericho Capital Asset Management, managed by Josh Resnick, initiated the most outsized position in Unity Software Inc. (NYSE:U). Jericho Capital Asset Management had $54.7 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also initiated a $32 million position during the quarter. The following funds were also among the new U investors: Joseph Samuels's Islet Management, Dmitry Balyasny's Balyasny Asset Management, and D. E. Shaw's D E Shaw.

Let's check out hedge fund activity in other stocks similar to Unity Software Inc. (NYSE:U). We will take a look at DuPont de Nemours Inc (NYSE:DD), KKR & Co Inc. (NYSE:KKR), Otis Worldwide Corporation (NYSE:OTIS), AFLAC Incorporated (NYSE:AFL), The Hershey Company (NYSE:HSY), NatWest Group plc (NYSE:NWG), and Welltower Inc. (NYSE:WELL). This group of stocks' market values are similar to U's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DD,51,1498457,-6 KKR,56,4652455,2 OTIS,46,2206787,1 AFL,34,223946,1 HSY,33,1274071,-5 NWG,7,8068,2 WELL,22,508861,3 Average,35.6,1481806,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1482 million. That figure was $7902 million in U's case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand NatWest Group plc (NYSE:NWG) is the least popular one with only 7 bullish hedge fund positions. Unity Software Inc. (NYSE:U) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for U is 67.3. 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on U as the stock returned 36.5% since the end of Q3 (through 11/30) 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.