Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
To most investors, hedge funds are viewed as slow, old investment tools of yesteryear. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the upper echelon of this group, about 750 funds. It is estimated that this group of investors control most of the hedge fund industry's total capital, and by watching their finest stock picks, Insider Monkey has identified many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey's flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
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. We're going to take a gander at the latest hedge fund action encompassing Okta, Inc. (NASDAQ:OKTA).
How have hedgies been trading Okta, Inc. (NASDAQ:OKTA)?
At the end of the second quarter, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in OKTA a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Alkeon Capital Management was the largest shareholder of Okta, Inc. (NASDAQ:OKTA), with a stake worth $254.7 million reported as of the end of March. Trailing Alkeon Capital Management was Whale Rock Capital Management, which amassed a stake valued at $231 million. SCGE Management, Coatue Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Since Okta, Inc. (NASDAQ:OKTA) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies that slashed their full holdings heading into Q3. At the top of the heap, Brandon Haley's Holocene Advisors said goodbye to the biggest position of the 750 funds followed by Insider Monkey, worth close to $79.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dumped about $77 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q3.
Let's go over hedge fund activity in other stocks similar to Okta, Inc. (NASDAQ:OKTA). We will take a look at Apollo Global Management, Inc. (NYSE:APO), American Airlines Group Inc (NASDAQ:AAL), Wynn Resorts, Limited (NASDAQ:WYNN), and Invitation Homes Inc. (NYSE:INVH). This group of stocks' market values are closest to OKTA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APO,23,1702873,5 AAL,34,2010537,-7 WYNN,39,1943762,-5 INVH,31,684813,7 Average,31.75,1585496,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $1585 million. That figure was $1259 million in OKTA's case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Apollo Global Management, Inc. (NYSE:APO) is the least popular one with only 23 bullish hedge fund positions. Okta, Inc. (NASDAQ:OKTA) 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 OKTA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OKTA were disappointed as the stock returned -20.3% 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.
Disclosure: None. This article was originally published at Insider Monkey.