Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like MongoDB, Inc. (NASDAQ:MDB).
Is MongoDB, Inc. (NASDAQ:MDB) a buy here? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions were cut by 5 in recent months. Our calculations also showed that MDB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). MDB was in 29 hedge funds' portfolios at the end of the third quarter of 2019. There were 34 hedge funds in our database with MDB positions 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_792409" align="aligncenter" width="464"] Brad Gerstner of Altimeter 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. We're going to check out the new hedge fund action regarding MongoDB, Inc. (NASDAQ:MDB).
Hedge fund activity in MongoDB, Inc. (NASDAQ:MDB)
At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in MDB a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Alex Sacerdote's Whale Rock Capital Management has the number one position in MongoDB, Inc. (NASDAQ:MDB), worth close to $142.4 million, corresponding to 2.6% of its total 13F portfolio. Sitting at the No. 2 spot is Tiger Global Management, led by Chase Coleman, holding a $104.7 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise Amish Mehta's SQN Investors, David E. Shaw's D E Shaw and Brad Gerstner's Altimeter Capital Management. In terms of the portfolio weights assigned to each position SQN Investors allocated the biggest weight to MongoDB, Inc. (NASDAQ:MDB), around 7.55% of its portfolio. Whetstone Capital Advisors is also relatively very bullish on the stock, setting aside 6.36 percent of its 13F equity portfolio to MDB.
Because MongoDB, Inc. (NASDAQ:MDB) has faced declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, Christopher Lyle's SCGE Management said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, worth close to $82.7 million in stock, and Brandon Haley's Holocene Advisors was right behind this move, as the fund dumped about $34.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as MongoDB, Inc. (NASDAQ:MDB) but similarly valued. These stocks are Xerox Holdings Corporation (NYSE:XRX), EQM Midstream Partners LP (NYSE:EQM), Logitech International SA (NASDAQ:LOGI), and CAE, Inc. (NYSE:CAE). This group of stocks' market caps are closest to MDB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XRX,32,1169230,4 EQM,11,35867,3 LOGI,14,213458,-2 CAE,11,145277,1 Average,17,390958,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $391 million. That figure was $527 million in MDB's case. Xerox Holdings Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand EQM Midstream Partners LP (NYSE:EQM) is the least popular one with only 11 bullish hedge fund positions. MongoDB, Inc. (NASDAQ:MDB) is not the most popular stock in this group but hedge fund interest is still above average. 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 MDB as the stock returned 23.4% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.