U.S. Markets close in 3 hrs 2 mins

New Relic Inc (NEWR): Are Hedge Funds Right About This Stock?

Abigail Fisher

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding New Relic Inc (NYSE:NEWR).

Is New Relic Inc (NYSE:NEWR) a good investment today? Hedge funds are in a bullish mood. The number of long hedge fund bets advanced by 8 lately. Our calculations also showed that NEWR isn't among the 30 most popular stocks among hedge funds. NEWR was in 28 hedge funds' portfolios at the end of September. There were 20 hedge funds in our database with NEWR positions at the end of the previous quarter.

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

RENAISSANCE TECHNOLOGIES

Let's check out the latest hedge fund action regarding New Relic Inc (NYSE:NEWR).

What have hedge funds been doing with New Relic Inc (NYSE:NEWR)?

Heading into the fourth quarter of 2018, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 40% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards NEWR over the last 13 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NEWR_dec2018

Among these funds, Renaissance Technologies held the most valuable stake in New Relic Inc (NYSE:NEWR), which was worth $123.1 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $85.3 million worth of shares. Moreover, Millennium Management, Matrix Capital Management, and Citadel Investment Group were also bullish on New Relic Inc (NYSE:NEWR), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Sandler Capital Management, managed by Andrew Sandler, initiated the biggest position in New Relic Inc (NYSE:NEWR). Sandler Capital Management had $17.5 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $5.8 million position during the quarter. The other funds with brand new NEWR positions are Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, Steve Cohen's Point72 Asset Management, and George Hall's Clinton Group.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as New Relic Inc (NYSE:NEWR) but similarly valued. We will take a look at Planet Fitness Inc (NYSE:PLNT), Monolithic Power Systems, Inc. (NASDAQ:MPWR), Syneos Health, Inc. (NASDAQ:SYNH), and Brighthouse Financial, Inc. (NASDAQ:BHF). This group of stocks' market values are similar to NEWR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLNT,32,505526,8 MPWR,18,126619,-3 SYNH,27,413900,8 BHF,22,1055138,-6 Average,24.75,525296,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $525 million. That figure was $517 million in NEWR's case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Monolithic Power Systems, Inc. (NASDAQ:MPWR) is the least popular one with only 18 bullish hedge fund positions. New Relic Inc (NYSE:NEWR) 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. In this regard PLNT might be a better candidate to consider a long position.

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

Related Content